An analysis said that factors such as a surge in overseas stock investments by Korea residents and concerns about an export slowdown due to tariffs on the United States affected the won's weakness in the second half of last year.

Song Min-gi, senior research fellow at the Korea Institute of Finance, said in a report on Feb. 1 titled "Background and implications of the recent rise in the won/dollar exchange rate" that the high exchange rate that has continued since the fourth quarter of last year is "on the surface closely related to a supply-demand imbalance caused by residents' expanded overseas securities investments."

The won-dollar exchange rate is displayed on the electronic board in the dealing room at Woori Bank's headquarters in Jung District, Seoul, on the 30th. /Courtesy of Woori Bank

According to the report, residents' overseas securities investments from January to November last year totaled $129.4 billion, more than 60% higher than the previous record of $78.5 billion in 2021. This is larger than the current account surplus for the same period ($101.8 billion).

In particular, during September to November last year, when the won/dollar rate rose steeply, residents' overseas securities investments reached $40.7 billion, far exceeding the current account surplus ($32.5 billion).

Song said, "Given that in the past the scale of residents' overseas securities investments generally fell short of the current account surplus, last year's surge in residents' overseas securities investments likely caused a significant supply-demand imbalance in the domestic foreign exchange market."

However, Song said it is insufficient to explain the increase in dollar demand by the expansion of residents' overseas securities investments alone. He assessed that recently, increased dollar demand from potential investments in the United States and concerns about an export slowdown due to U.S. tariffs have heightened expectations for a future rise in the exchange rate.

Considering global factors such as the possibility of U.S. rate cuts, Song said major overseas forecasting institutions generally expect the won/dollar rate to gradually stabilize lower this year. He added, "To prevent excessive herd expectations, the government needs to ease temporary imbalances in foreign exchange supply and demand while continuing policy efforts to boost productivity and economic dynamism over the long term."

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