As the won's weakness persists, the won-dollar exchange rate is cementing the 1,400-won level. Even after the foreign exchange authorities engaged in verbal intervention, there were no signs of the rate falling, spreading the view in the market that the 1,400-won range is not a temporary phenomenon but a structural trend. With external uncertainties piling up, including U.S.-China trade tensions and delays in South Korea-U.S. trade talks, forecasts are mounting that the high exchange rate will continue through the end of the year.
According to Seoul Money Brokerage Services on the 20th, on the 17th the won-dollar rate closed at 1,421.2 won, up 3.3 won from the prior transaction day's weekly closing (as of 3:30 p.m.). Since breaking through 1,400 won on the 25th of last month (1,400.6 won), the closing rate has remained in the 1,400-won range except for just one day (Sept. 29, 1,398.7 won).
◇ Up 80 won in three months… Won's weakness deepens on tariff uncertainty
As recently as three months ago, the rate had fallen to the low 1,350-won range, showing stability. But after July, the rate began to swing in line with the results of U.S. reciprocal tariff negotiations and gradually turned upward.
In particular, market anxiety widened as the funding method for the "$350 billion U.S.-investment fund," the core issue in recent South Korea-U.S. tariff talks, failed to find common ground. On top of that, China's rare earth export restrictions right after Chuseok reignited U.S.-China tensions, and the won's value fell further, pushing past 1,430 won per dollar.
On the 13th, the foreign exchange authorities engaged in verbal intervention, saying they were "monitoring closely with caution about potential one-sided moves in the market," but it was not enough to break the uptrend. The rate, which had surged to 1,434 won intraday on the 13th, closed at 1,425.8 won due to the verbal intervention, but on the 14th the closing price rose again to 1,431 won.
Oh Jae-young, an analyst at KB Securities, said, "As details related to U.S.-bound investment have not been decided, the rate is likely to fluctuate for a while as we watch the course of negotiations at the current level," adding, "U.S.-China tariff negotiations could also add volatility for the won." He said, "If the rate rises further from the current level, we need to consider the possibility of testing the upper band in the 1,450-won range, and even the 1,480-won range, which was the peak late last year and early this year."
◇ Around 1,400 won next year… Weakness likely to ease if WGBI inclusion proceeds
The market is uniformly raising its second-half exchange rate outlook. NH Investment & Securities revised its fourth-quarter average rate forecast up to 1,380 won from 1,350 won. Korea Investment & Securities also raised its previous outlook (1,370 won) by 20 won to 1,390 won. Woori Bank projected a fourth-quarter average of 1,410 won.
The outlook for next year is also tough. Sangsangin Investment & Securities predicted the average won-dollar rate would reach 1,441 won as the U.S. demand for large-scale investment becomes full-fledged. Korea Investment & Securities predicted a gradual rise, at 1,370 won, 1,380 won, 1,390 won, and 1,410 won for the first through fourth quarters, respectively. Woori Bank forecast 1,420 won in the first quarter, 1,400 won in the second quarter, 1,400 won in the third quarter, and 1,380 won in the fourth quarter.
Market experts see a strong possibility that the won's weak trend will continue for the time being. U.S.-China trade tensions are dragging on, and South Korea-U.S. trade talks are not reaching an easy conclusion. In addition, global supply chain instability and geopolitical risks in the Middle East are expected to further pressure the won. Min Kyung-won, a researcher at Woori Bank, said, "Trade tensions will peak in the first half of next year," adding, "The won is likely to face growing depreciation pressure as a result."
Some, however, expect upward pressure on the rate to ease somewhat toward the end of this year. That is because U.S. Federal Reserve (Fed) Chair Jerome Powell has hinted at the possibility of ending quantitative tightening (QT), raising expectations for U.S. rate cuts. If U.S. rates fall, dollar strength may ease and buying interest in emerging market currency, including the won, could partially recover.
Lim Hye-yoon, a researcher at Hanwha Investment & Securities, said, "Concerns about tariffs have been prolonged, but trade uncertainty is easing gradually," adding, "As global trade and major economies' manufacturing conditions pass the bottom, and Korea's terms of trade remain favorable, these can be reflected, with a lag, as factors for a stronger won."
Park Sang-hyun, a researcher at iM Securities, said, "The Fed will keep cutting rates and U.S.-China tensions will eventually be patched up," adding, "These factors will weigh on the dollar, bringing the rate down to 1,380 won by year-end." He added, "In the first half of next year, factors favoring a stronger won, including inclusion in the World Government Bond Index (WGBI), could pull it down to the mid-1,300-won range."