Will the Exchange Rate Drop Below 1,300 Won by Year-End?... Exploring the Causes [Weekend Money]

Large Dollar Supply from Exporters Remains
Won's Downward Trend Expected to Continue Through Year-End

A currency exchange booth on Myeongdong Street in Seoul on the 23rd of last month when the exchange rate fell to the 1300-won level. Photo by Yonhap News

There are now forecasts that the recent downward trend in the won-to-dollar exchange rate may continue, with the rate potentially dropping to the 1,200-won range by the end of the year.

On September 12, Korea Investment & Securities revised its forecast for the average won-to-dollar exchange rate for the second half of this year, lowering it by an additional 40 won from the previous estimate of 1,420 won to 1,380 won.

Moondown, a researcher at Korea Investment & Securities, stated, "This week, the sharp increase in dollar selling by exporters and the surge in the yen have resulted in a significant weakening of the dollar, clearly pushing the exchange rate below 1,340 won." He predicted, "Given the steep drop in the lower bound and the expected trajectory ahead, even if there are days in the fourth quarter when the exchange rate rises into the 1,400-won range, the quarterly average is likely to stabilize in the 1,300-won range."

He added, "As time passes, the perceived appropriate exchange rate continues to fall, so currently there is considerable uncertainty about where the lower bound lies." He continued, "Until a clear bottom forms and a rebound trend is established, the exchange rate is likely to fall further as it seeks a new equilibrium between supply and demand."

He went on to say, "There is still a large amount of dollar supply that has yet to be absorbed, so signals of a shift to a buying trend are weak." He explained, "The demand to sell dollars remains significant even at these lower exchange rates."

Moondown added, "While there will likely be strong resistance near the 1,300-won level, if it is broken, the lower bound could quickly decline, so it is necessary to leave open the possibility of entering the 1,200-won range." He further emphasized, "Once the exchange rate breaks into the 1,200-won range, the pace of decline is expected to moderate."

He explained, "July and August were a period in which persistent imbalances had been accumulating, but those were resolved, and September is now a time when the market is searching for an appropriate level, reflecting dollar supply and demand, growth, interest rates, and other macroeconomic factors." He added, "There is a strong possibility that, after temporarily undershooting, the exchange rate will settle again in the mid-1,300-won range."

In addition, he analyzed, "Concerns are growing over the recent sharp drop in the exchange rate, and it appears that the government's policy stance has shifted to moderating this downward speed." He went on, "Actions are being taken to ease excessive one-sided dollar selling pressures, such as the announcement of foreign exchange stabilization fund dollar purchases and the news that the National Pension Service has stopped hedging the won and resumed dollar buying."

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