Q2 Average Exchange Rate Exceeds 1,500 Won... First Time in 28 Years Since the Financial Crisis

Average at 1,500.1 won from April 1 to June 26
Highest since Q1 1998 (1,596.8 won)
Continued foreign capital outflows due to "portfolio rebalancing"
Korean won expected to remain under depreciation pressure for now

The average KRW-USD exchange rate for the second quarter of this year is expected to surpass 1,500 won for the first time in 28 years since the foreign exchange crisis. Analysts believe that ongoing foreign capital outflows due to the sharp rise in the domestic stock market will continue to exert downward pressure on the won in the near term.

On the 26th, the Seoul Jung-gu Hana Bank dealing room status board displayed the KOSPI index and the KRW-USD exchange rate. Photo by Yonhap News Agency

According to the Bank of Korea Economic Statistics System, the average KRW-USD exchange rate, based on the closing price of weekly trading from April 1 to June 26 at 3:30 p.m., is 1,500.1 won. Considering the closing price on the 26th (1,532.0 won), the average exchange rate for the second quarter is expected to exceed 1,500 won even after reflecting the two remaining trading days in June. This is the first time in 28 years and 3 months—since the first quarter of 1998, during the foreign exchange crisis (1,596.8 won)—that the quarterly average exchange rate has reached the 1,500 won level. It is even higher than the first quarter of 2009 (1,418.3 won), when the rate spiked during the global financial crisis.

The main driver of the recent weakness in the won has been the large-scale net selling of domestic stocks by foreign investors. From the beginning of the year until June 26, foreigners have recorded a net sale of 136.7841 trillion won worth of stocks in the Korea Exchange. For June alone, net selling has reached 37 trillion won. Analysts attribute these outflows to profit-taking following the sharp rise in domestic stock prices and portfolio rebalancing. Experts believe this trend may continue for the time being.

Some analysts estimate that foreigners still have a net selling capacity of 100 trillion to 150 trillion won. The foreign ownership ratio in the Korea Exchange increased by 5.14 percentage points from 36.28% at the end of last year to 41.42% as of June 26. Despite the continued selling by foreigners driven by rising prices of large-cap stocks held by foreign investors, this increase in ownership ratio has occurred.

The strengthening of the dollar, due to fading expectations of a U.S. interest rate cut, is also intensifying downward pressure on the won. The dollar index, which measures the value of the dollar against the currencies of six major countries, climbed to 101.798 during trading on June 24, reaching its highest level in 13 months since May 12 last year (101.974). The weakening of the yen is also impacting the won, as the won tends to move in tandem with the yen. The JPY-USD exchange rate rose to 161.93 yen on June 25, marking its highest level in 1 year and 11 months.

Some believe that the listing of SK hynix's American Depositary Receipts (ADR) on the Nasdaq on July 10, with an estimated value of 30 billion dollars, may ease the downward pressure on the won. The expectation is that as SK hynix brings the dollars raised in the U.S. back to Korea, the supply-demand situation will improve. However, most experts agree that unless the flow of foreign capital reverses, it will be difficult for the exchange rate to shift to a downward trend in the near future.

Jeon Kyuyeon, economist at Hana Securities, stated, "In the short term, the exchange rate will trend upward in response to the strong U.S. dollar," adding, "Due to the continued net selling of domestic stocks by foreigners, the supply-demand factors that could drive a fall in the exchange rate are limited." However, Jeon also noted that since the current exchange rate is close to the peak level seen during the financial crisis (1,597 won), there is likely to be a growing perception of a peak around the 1,560 won level.

This content was produced with the assistance of AI translation services.