As the exchange rate of the won against the U.S. dollar (won-dollar exchange rate) surpassed 1460 won, there are projections that if political uncertainty increases, it could rapidly reach 1500 won.
On the 26th in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1464.8 won for the week. This is the highest level since March 2009, which was shaken by the global financial crisis. Park Sang-hyun, a Research Institute researcher at iM Securities, noted, "The won-dollar exchange rate unexpectedly broke through the 1450 won resistance level easily, and there was an expectation that the National Pension Service hedge would defend against further increases in the exchange rate, but hedge volumes did not appear."
Park assessed that the recent surge in the exchange rate is more influenced by the depreciation of the won than the strength of the dollar. The dollar index, which reflects the dollar's value against six major currencies, slightly declined from a peak of 108.2 on the 19th to 107.9 on this day.
Park pointed out the impeachment of President Yoon Suk-yeol as a factor in the depreciation of the won. He said, "Contrary to expectations that the risk would be resolved early due to the National Assembly's decision on the impeachment motion, the likelihood of prolonged uncertainty has increased, negatively affecting national credibility and foreign capital flows." He added that, "Both the Korean credit default swap (CDS) premium and domestic credit spreads are trending upward, indicating a deterioration in how foreigners view Korea."
Concerns about the domestic economy are also fueling the rise in the won-dollar exchange rate. This year's Consumer Sentiment Index for December has plunged 12.3 points from last month to 88.4. Park stated, "Even compared to the impeachment of former President Park Geun-hye, it can be confirmed that consumer sentiment, or the sluggishness in domestic demand, is relatively serious in this impeachment situation."
There are many factors that could further increase the won-dollar exchange rate in the future. Representative examples include policy risks from U.S. President Donald Trump's second administration, uncertainties surrounding the monetary policy of the U.S. Federal Reserve (Fed), and expectations for further cuts in the base rate by the Bank of Korea due to sluggish domestic economic performance.
Park said, "For the won-dollar exchange rate to stabilize immediately, uncertainties regarding domestic politics as viewed by foreigners must be alleviated," adding, "If the uncertainties surrounding the impeachment situation grow, there is a possibility that the won-dollar exchange rate could reach the 1500 won level sooner than expected."