The Exchange Rate Settles in the 1,300 Won Range After Peaking at 1,550 Won: Outlook [Weekend Money]

KB Securities Forecasts Won–Dollar Exchange Rate to Stay in 1,350–1,450 Won Range for Some Time

On the 23rd, exchange rates were displayed at a currency exchange booth on Myeongdong Street in Seoul. Photo by Yonhap News

Recently, the won–dollar exchange rate, which has continued to decline and settled in the high 1,300 won range, is expected to fluctuate between the mid-1,300 won and mid-1,400 won range for some time.

On August 30, Oh Jaeyoung, a researcher at KB Securities, said, “The won–dollar exchange rate is likely to remain within the 1,350–1,450 won range for the time being,” and explained, “While there is still some room for further decline, the effect of SK hynix's ADR (American Depositary Receipts) capital inflow into the U.S. market is largely coming to an end from a supply and demand perspective.” He added, “Now that the exchange rate has already fallen to the 1,300 won level, renewed foreign selling of domestic stocks and an increase in domestic overseas investment could potentially limit further declines in the exchange rate.”

The won–dollar exchange rate dropped to the 1,300 won level on August 19 and has since hovered around 1,380 won. According to KB Securities, Korean investment in U.S. stocks shifted from net selling in April and May to net buying in June, further increasing to 4.6 billion dollars in July. Foreign investors' selling of Korean stocks, which was at the 40 trillion won level in May and June, weakened to an average of about 10 trillion won from July to August.

Researcher Oh noted, “In the past, a strong won used to lead to foreign capital inflow and a rising stock market, but this correlation has now weakened. If foreigners resume large-scale selling of Korean stocks, the exchange rate could rebound to the 1,400 won level within the current range.”

He believes that the Bank of Korea's base rate hikes have only a limited effect on the exchange rate. “The Monetary Policy Board of the Bank of Korea raised the base rate for two consecutive months, reaching 3.00% in August after July,” he explained. “However, the market had already expected a rate hike due to the board members’ hawkish stance, so I do not see this as a significant driver of additional short-term strengthening of the won.”

Nevertheless, he pointed out, “Looking at the rest of the year, while another rate hike from the Bank of Korea is anticipated, expectations for further U.S. rate hikes have recently receded due to weaker employment indicators. Therefore, in the fourth quarter, the divergence in monetary policy between the two countries could lead to won appreciation.”

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