Exchange Rate Drops to the 1,330-Won Range: "Key Future Factors Include Korea-U.S. Interest Rate Gap, Current Account"

Down 264.5 Won from July 1 Peak

Influenced by SK Hynix ADR Listing and Strong Exports

Current Account Trends and Fed Rate Decisions Are Key

The won-dollar exchange rate fell to as low as 1,334.7 won during intraday trading, marking a 23-month low. Compared to the peak of 1,599.2 won on July 1, it has declined by 264.5 won. Market analysts indicate that, going forward, traditional factors such as the Korea-US interest rate differential, current account trends, and the real effective exchange rate are expected to become the main variables influencing the direction of the won-dollar exchange rate, rather than simply dollar supply and demand.

According to the Seoul foreign exchange market on September 7, as of 9:59 a.m. that day, the won-dollar exchange rate was trading at 1,334.7 won, down 15.7 won from the previous trading day's closing (3:30 p.m., 1,350.4 won). This is the lowest intraday level since October 4, 2024, when it hit 1,331.6 won. Compared to the July 1 peak of 1,599.2 won, the rate has dropped by 264.5 won in just over two months.

After showing an upward trend until early July, the exchange rate has declined sharply over the past two months. The average weekly closing (3:30 p.m.) won-dollar exchange rate last month was 1,404.4 won, the lowest level since it recorded 1,392.4 won in September 2025. In particular, compared to the average of 1,488.9 won in July, the monthly average exchange rate fell by 84.5 won in just one month. The weekly closing at the end of last month was 1,368.6 won, which marks a drop of 55.4 won compared to the end of July (1,424 won), posting a 14-month low since June 2025 (1,350 won).

The sharp drop in the won-dollar exchange rate is primarily attributed to improvements in dollar supply, as exporters in semiconductors and IT sectors converted their dollar holdings into won. This, in turn, triggered a cycle that encouraged further dollar selling in the market. Following the listing of the SK hynix ADR on July 15, an influx of dollar funds entered the domestic market for more than a month, and with exporters converting their dollar revenue to won, the overall dollar supply in the domestic market increased. According to the Bank of Korea, Korea's current account surplus set a record, ranking first and second with 49.73 billion dollars in June and 42.08 billion dollars in July, respectively. In addition, growing expectations of further dollar selling due to expanded shareholder returns by domestic semiconductor companies such as Samsung Electronics and SK hynix further fueled the dollar selling trend, according to experts.

Moon Junghee, Chief Economist at KB Kookmin Bank, commented, "There is a continued inflow of dollars into the domestic market, and with the current account surplus rising sharply compared to previous years, the supply side remains dominant. Even foreign banks, which have been conservative about holding won, are now selling dollars to increase their won positions."

With the exchange rate falling to the 1,330 won range and dollar supply stabilizing, the market now expects that the Korea-US interest rate differential, current account movements, as well as the monetary and exchange rate policies of major economies, will be the primary drivers of the exchange rate moving forward. The gap between Korea's base interest rate (3.0%) and the upper bound of the US federal funds rate (3.75%) has narrowed to 0.75 percentage points, the smallest since September 2022.

Chief Economist Moon further projected, "As the undervaluation of the won has largely dissipated, theoretical aspects including the Korea-US interest rate differential, current account balance, and real effective exchange rate, rather than simple dollar supply and demand, will become more important in influencing the exchange rate."

Park Sanghyun, Economist at iM Securities, stated, "If the US Federal Reserve raises rates in the future, the value of the dollar could rise, pushing the exchange rate higher. However, if the Fed maintains its current rate while other major central banks, such as Japan's, raise theirs, the dollar could weaken and the won-dollar exchange rate could fall as well."

Yonhap News

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