The value of the won is fluctuating due to Korea-U.S. trade negotiations. This month, the won-dollar exchange rate's fluctuation is ranked 4th among major countries and 1st among Asian countries. The fluctuation was greater than that of Japan, which faced exchange rate volatility during tariff negotiations with the U.S. This week, the possibility of further widening exchange rate fluctuations has been raised, depending on the outcome of the Korea-U.S. tariff negotiations.
◇ The won's 'bouncing' amid trade negotiations… 40 won 'fluctuation' this month
According to the Bank of Korea's Economic Statistics System (ECOS) on the 30th, from the 1st to the 29th of this month, the average daily fluctuation rate of the won-dollar exchange rate (compared to the previous day's closing price) was 0.14%. This is the 4th highest figure among the 42 major countries (including the won), following Argentina (0.41%), Kazakhstan (0.20%), and Russia (0.17%). The fluctuation of Korea's currency was greater than Japan's (0.13%), which experienced volatile exchange rates due to tariff negotiations with the U.S.
The exchange rate had been showing a downward trend since the political uncertainty was resolved after former President Yoon Suk-yeol's impeachment in April. On May 15, it closed at 1,394.5 won, falling to the 1,300 won range for the first time in about five months, and on June 30, it dropped to 1,347.1 won during intraday trading. It then remained stable for a while, fluctuating around the 1,350 won level.
However, as the U.S. began to finalize a series of trade agreements, the value of the won began to fluctuate again. On the 4th, when the White House announced the trade agreements, the exchange rate rose to 1,362.3 won (based on closing price), and five days later, on the 9th, it surged to 1,375 won. On the 14th and 17th, when news of agreements with Canada, Indonesia, and Japan was reported, it recorded 1,381.2 won and 1,392.6 won, respectively, exceeding 1,390 won.
The exchange rate is sensitive to U.S. tariff policies because of Korea's high trade dependence. According to the Korea International Trade Association, the share of exports relative to Korea's nominal gross domestic product (GDP) last year was 36.6%, the third highest among G20 countries, following the Netherlands (73.4%) and Switzerland (47.4%). If the U.S. imposes high tariffs, global trade will shrink, exerting downward pressure on the exchange rate.
Min Kyung-won, a researcher at iM Securities, noted, "President Trump indicated a tough trade policy with plans to impose tariffs of 15-20% on countries that do not sign trade agreements," adding, "As uncertainty related to trade policy increases, the strength of the U.S. dollar emerged, and the won is under significant weakening pressure."
◇ Attention on Korea-U.S. negotiation results… 'Buy USA' phenomenon supports dollar strength
The market expects the exchange rate to rise further depending on the results of the Korea-U.S. tariff negotiations. On the 7th (local time), President Trump stated in a tariff letter addressed to President Lee Jae-myung that starting from August 1, Korea would impose a 25% reciprocal tariff on all products exported to the U.S. This level significantly exceeds tariffs imposed on Japan (15%) or the EU (15%).
The government is making every effort to lower the tariff rate by the 1st of next month, when the reciprocal tariff imposed by the U.S. will take effect. Deputy Prime Minister and Minister of Economy and Finance Ku Yun-chul met on the 29th (local time) in Washington, D.C., with Minister of Trade, Industry and Energy Kim Jeong-kwan and Chief Negotiator for Trade Yeo Han-koo, along with U.S. Secretary of Commerce Howard Lutnick for trade consultations. Deputy Prime Minister Ku is scheduled to meet U.S. Secretary of the Treasury Scott Bessent on the 31st, which is expected to be the final negotiation one day before the U.S. imposes reciprocal tariffs.
While the government is focusing on lowering U.S. tariffs on Korea, if tariffs are set at a level higher than the market expects, a weak won is inevitable.
Even if the Korea-U.S. trade negotiations yield a certain level of success, there are predictions that the strength of the U.S. dollar will continue for the time being. This is due to major countries like Japan ($550 billion) and the EU ($600 billion) announcing large-scale investment plans in the U.S., increasing the likelihood that global funds will flow into the U.S. If tariff revenues increase, it is expected to further strengthen the preference for the U.S. dollar.
Park Sang-hyun, a researcher at iM Securities, stated, "From both short-term and medium-term perspectives, the U.S. economy is expected to gain significantly compared to other major countries," adding, "The American exceptionalism phenomenon is likely to gain further momentum with the conclusion of this tariff agreement." He further explained that the strengthening of the 'Buy USA' phenomenon for global funds would support the strength of the U.S. dollar.