2025 was the year when the average won-dollar exchange rate (1,422 won) hit a record high. As individuals, corporations, and the National Pension Service expanded overseas investments, they sold won and bought a lot of dollars. The government rolled out various measures—such as easing foreign-currency rules for corporations and financial firms when the exchange rate rose into the 1,480-won range during the year, and offering tax incentives to bring Korean retail investors trading U.S. stocks back to the domestic stock market—but it could not prevent the "record high exchange rate."
Investors are watching to see whether the same upward trend in the exchange rate will continue in 2026 as last year. In response, ChosunBiz surveyed 20 domestic macroeconomic experts on the exchange rate outlook on the nth of last month. Eighty-five percent of respondents expected this year's average exchange rate to be in the 1,400–1,450 won range, similar to last year.
If such an exchange rate materializes, it would be higher than during the 1998 foreign exchange crisis (1,394.97 won), the 2009 global financial crisis (1,276.35 won), and 2024, when martial law was in place (1,364.38 won).
◇ "This year's average exchange rate will top 1,400 won, following last year"
ChosunBiz asked experts which of four ranges this year's average exchange rate would fall into: ▲ the 1,300-won range ▲ 1,400 won to under 1,450 won ▲ 1,450 won to under 1,500 won ▲ 1,500 won or higher.
Nineteen of the 20 experts predicted this year's average exchange rate would exceed 1,400 won. Of them, 17 (85%) said it would be 1,400 won to under 1,450 won. One (5%) projected 1,450 won to under 1,500 won, and one (5%) expected 1,500 won or higher. In contrast, one (5%) expected the exchange rate to fall into the 1,300-won range.
Most experts said it would be difficult for the overseas investment trend among domestic individual investors, corporations, and institutions to reverse in the short term. They also cited the possibility that, once the $350 billion Korea-U.S. investment fund agreed upon by the Korean and U.S. governments is fully activated, a dollar shortage could emerge in the domestic foreign exchange market.
There was also talk that the narrowing of the Korea-U.S. interest rate gap could be slower than expected. The current U.S. benchmark rate is 3.50%–3.75% per year, a 1.25 percentage point gap with Korea (2.50%). When there is a rate gap between countries, investors tend to pull money from the relatively lower-rate country and invest in the higher-rate one. As the Korea-U.S. rate gap has not narrowed, it has supported a higher exchange rate.
Until recently, among U.S. economic experts, expectations had strengthened that the Federal Reserve would cut rates further this year. However, the minutes of the Fed's December meeting released on the 30th of last month (local time) showed that 3 of the 12 members opposed rate cuts. It is unusual for as many as three dissenting views in a Fed meeting, which operates by consensus. Two of the three said rates should be kept on hold because inflation has been high recently.
Seo Jeong-hun, senior research fellow at Hana Bank, said, "As opinions opposing rate cuts are emerging within the Fed, the pace of exchange rate declines is expected to be slow early in the year."
◇ Factors for a lower exchange rate also remain... Korean bonds to be added to a global index in April
Some experts predicted the exchange rate would not rise as sharply as last year. They said the inclusion of Korean bonds in the WGBI (World Government Bond Index) in April could be a factor boosting the won's value.
The WGBI is a developed-market bond index calculated by global index provider FTSE Russell, and it includes government bonds from 26 major countries. Funds tracking this index are estimated at $2.5 trillion to $3 trillion. The National Pension Service's Investment Management Department analyzed that, once Korea is added to the WGBI, about $56 billion in foreign capital would flow in.
Meanwhile, 8 out of 20 experts rated last year's market stabilization measures by the foreign exchange authorities positively. Cho Yong-gu, research fellow at Shinyoung Securities, said, "It clearly showed investors the government's strong commitment to stabilizing the exchange rate." In contrast, 8 said the measures were "average," and 4 rated them "negative." Kim Ho-jeong, an economist at Yuanta Securities Korea, said, "It was effectively a public acknowledgment that Korea lacks dollars."
Respondents said the exchange rate would stay stable without major swings only if Korea becomes an attractive investment destination for domestic and overseas investors. Yoon Ji-ho, an economist at BNP Paribas, said, "Policies friendly to corporations and measures that can spur domestic investors to invest in the local market are necessary." Ha Geon-hyeong, an economist at Shinhan Investment Corp., also said, "We need to strengthen support for innovative domestic corporations to raise the potential growth rate."