On the 11th, the won closed at 1,473 won per U.S. dollar, up 2.6 won. The U.S. Federal Reserve (Fed) cut its benchmark interest rate, narrowing the Korea-U.S. rate gap, but the won weakened as expectations for additional Fed cuts diminished.

In the Seoul foreign exchange market that day, the won-dollar rate opened at 1,464.5 won, down 5.9 won from the previous trading day's weekly transaction closing price (3:30 p.m.). This came as news broke early that morning that the Federal Open Market Committee (FOMC) lowered its benchmark rate to 3.50%–3.75% per year. Typically, a U.S. benchmark rate cut narrows the Korea-U.S. rate gap and acts as a factor strengthening the won.

On the afternoon of the 11th, an electronic board in the Hana Bank dealing room in Jung-gu, Seoul, shows the KOSPI at 4,110.62, down 24.38 points (0.59%) from the previous trading day. /Courtesy of News1

However, as soon as trading began, the rate rebounded and continued to climb. At 11:36 a.m., it surpassed 1,470 won, and at 3:09 p.m., it broke through 1,473 won. After that, the rate kept rising, reaching as high as 1,474 won just before the close before falling back to 1,473 won.

Experts said the rate fell early in the session in response to the narrower Korea-U.S. rate gap, but then turned higher as more participants viewed the FOMC outcome as hawkish (favoring monetary tightening).

Im Hwan-yeol of Woori Bank said, "Early in the session, the point that the Fed mentioned a plan to purchase short-term Government Bonds along with a rate cut stood out, creating expectations that dollar liquidity would expand," adding, "But the trend reversed as market attention shifted to Chair Jerome Powell's remarks that the Fed would decide on rate cuts prudently."

Rising geopolitical tensions around East Asia also lifted the rate. According to Japan's Defense Ministry, on the 10th, Japan Self-Defense Forces fighter jets and U.S. strategic bombers conducted a joint drill in airspace over the East Sea. The drill took place a day after Chinese and Russian military aircraft appeared over the East Sea and waters off Okinawa Prefecture to conduct a joint exercise, heightening tensions in East Asia.

Im said, "A combination of hawkish FOMC results and geopolitical conflicts in East Asia pushed the rate higher," adding, "Until expectations for Fed rate cuts recover or export companies' nego (exporters converting dollar proceeds from goods payments into won) supply comes to market, the rate is likely to stay elevated."

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