The won-dollar exchange rate topped 1,410 won for the first time in four months. Analysts said market anxiety is growing as the stronger dollar on the back of solid U.S. economic data coincides with uncertainty surrounding $350 billion in investment funds for the United States.
According to the Seoul foreign exchange market on the 26th, the weekly transaction closing price of the won-dollar exchange rate at 3:30 p.m. ended at 1,412.4 won, up 11.8 won from the previous trading day. It is the first time in about four months since May 15 (1,412.1 won) that the closing rate has been in the 1,410-won range.
The main driver of the higher exchange rate is the robust U.S. economy. The Bureau of Economic Analysis (BEA) under the U.S. Department of Commerce on the 25th (local time) confirmed second-quarter gross domestic product (GDP) growth at an annualized 3.8%. That is 0.5 percentage point higher than last month's advance estimate of 3.3% and the highest in seven quarters since the third quarter of 2023 (4.7%).
The solid U.S. economy led to a stronger dollar. According to Investing.com, the U.S. Dollar Index (DXY), which measures the dollar against the currencies of six major countries, stood at 98.38 as of 4:13 p.m. It rose 0.74% from a week earlier, breaking above 98.
Expectations for Federal Reserve (Fed) rate cuts also diminished. According to CME Group's FedWatch, participants in the federal funds rate (ff) futures market see a 12.3% chance of a rate hold at the Federal Open Market Committee (FOMC) meeting on the 26th of next month. The probability of a hold rose 6.2 percentage points from a day earlier (8.1%).
Uncertainty related to the Korean economy is also fueling the rise in the exchange rate. Disagreements over $350 billion in investment funds for the United States have disrupted tariff negotiations with the U.S. The two countries agreed on the size of the investment funds for the United States but have not narrowed their differences over how to raise and use the money. In particular, U.S. President Donald Trump said overnight that Korea's $350 billion investment for the United States is "prepaid," further heightening market concerns.
This is accelerating the outflow of foreign funds that had poured into the domestic stock market. According to the Korea Exchange, foreigners posted a net sale of 832.2 billion won in stocks on the Korea Composite Stock Price Index market. With foreigners pulling out, the KOSPI fell 85.06 points, or 2.45%, from the previous trading day to close at 3,386.05.
Wi Jae-hyeon, an economist at NH Futures, said, "In addition to the uncertainty related to investment in the United States that drove last week's rise in the exchange rate, this week also saw dollar strength on the back of solid U.S. fundamentals, expanding upward pressure on the exchange rate," adding, "In the short term, we are revising the upper end of the exchange rate range to 1,420 won from 1,400 won."