Exchange Rate Falls Below 1,490 Won... Oil Prices, Foreign Capital, and Interest Rates to Determine Direction

Inflow of Dollars Linked to SK hynix ADR Listing
Decrease in Net Foreign Selling in the Korean Stock Market

Third Quarter Exchange Rate to Be Driven by Foreign Investment and Oil Prices

The won-dollar exchange rate, which climbed to the mid-1,500 won range, has been experiencing a downward adjustment for a week, remaining below 1,490 won. Experts observe that the future movement of the exchange rate will be determined by trends in oil price increases due to the war in the Middle East, the flow of foreign funds in the domestic stock market, and the Korea-U.S. interest rate gap.

According to the Bank of Korea's Economic Statistics System (ECOS) on July 23, the won-dollar exchange rate recorded a peak of 1,554.4 won (base exchange rate) on July 2, then began to fall, reaching 1,475.6 won on July 22. The rate fell below the 1,500-won level on July 15, coming in at 1,492.2 won, and since the 16th, it has not exceeded 1,490 won, fluctuating within the 1,470–1,480 won range. As of 10:58 a.m. today, the won-dollar exchange rate is trading at 1,468.4 won on the Seoul foreign exchange market, marking a drop of 13.2 won compared to 3:30 p.m. on the previous trading day (weekly closing).

Although the renewed war in the Middle East, caused by U.S. airstrikes against Iran, has strengthened the dollar, the domestic inflow of dollars related to SK hynix ADR listing that started on July 14, a reduction in foreign investor outflows from the domestic stock market, and government efforts to stabilize the exchange rate have all contributed to the appreciation of the won.

The SK hynix ADR listing funds (26.5 billion dollars) began entering Korea on July 14 and are expected to continue inflowing through August. A continued export boom led by semiconductor companies has also increased the amount of foreign exchange hedging by exporters, which is cited as another factor driving the exchange rate lower.

Foreign investors recorded net selling of over 50 trillion won on KOSPI last month, but from July 1 to 10, the net selling amount was reduced to 24 trillion won. From July 13 to 22, they switched to net buying of 3.672 trillion won. Active verbal intervention by the government and foreign exchange authorities, the opening of the 24-hour foreign exchange market, and a 0.25 percentage point increase in the benchmark rate by the Bank of Korea’s Monetary Policy Board have also contributed to the appreciation of the won.

The market expects that foreign investor supply and demand trends will have a significant impact on the future movement of the won-dollar exchange rate. Park Sanghyun, an economist at iM Investment & Securities, stated, “Supply and demand conditions improved after the SK hynix ADR listing, and a decrease in net foreign selling since July is also a positive factor,” adding “the extent to which net selling further declines will be another variable to watch.” Moon Jeonghee, Chief Economist at KB Kookmin Bank, commented, “The correlation between reduced foreign selling and a declining exchange rate was evident as stock prices went through a correction,” and added, “If stock prices rise, there will likely be an increase in selling for profit-taking, which could push the exchange rate up again.” She further stated, “The synchronized movement between the stock index and the won-dollar exchange rate is expected to continue for the time being.”

The rise in oil prices due to the resumption of war in the Middle East and the interest rate gap between Korea and the U.S., depending on whether the U.S. Federal Reserve raises rates, are also expected to affect the exchange rate. International oil prices, which dropped to the 70-dollar-per-barrel range during the ceasefire between the U.S. and Iran, have recently risen above $80. On this day, West Texas Intermediate (WTI) September delivery futures closed at $86.83 per barrel—up 2.95% from the previous session—and Brent September delivery futures surged 3.36% to $94.07 per barrel.

Baek Seokhyun, an economist at Shinhan Bank, said, “Oil prices are rising, but the foreign exchange market still seems to view the current levels as being within a familiar volatile range. If prices move beyond this range, the market’s response could become significantly stronger.”

Whether the U.S. Federal Reserve will raise its benchmark rate is also a key factor. If the Federal Open Market Committee (FOMC) regular meeting scheduled at dawn on July 30 (Korea Standard Time) results in an increase from the current 3.75%, the Korea-U.S. interest rate gap will widen further, potentially pushing up the won-dollar exchange rate. Conversely, should the benchmark rate be held steady, it is analyzed that the won-dollar exchange rate will likely fall further.

Park Hyungjoong, an economist at Woori Bank, forecast, “If the Fed raises its benchmark rate in the second half of the year, the exchange rate could climb back to 1,500 won next month. Continued weakness in the yen, which has recently shown synchronization with the won, could also increase exchange rate volatility.” On the other hand, economist Park Sanghyun and Chief Economist Moon assess that, considering inflation and employment indicators, the Fed is unlikely to raise the benchmark rate, saying, “We expect the exchange rate to continue declining through the third quarter.”

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