The won-dollar exchange rate moved more than 60 won in January. The fluctuation range was the largest since last May, when U.S. President Donald Trump was negotiating tariffs with China and the European Union (EU).
According to Seoul Foreign Exchange Brokerage on the 2nd, the difference between the highest intraday level in January (1,481.4 won on the 21st) and the lowest (1,419.5 won on the 28th) was 61.9 won. The fluctuation range was the largest since last May (79.5 won). At that time, the rate climbed to 1,440 won on expectations that the U.S.-China tariff talks would be concluded, then fell to 1,360.5 won after President Trump signaled he would impose a 50% tariff on the EU.
Last month's exchange rate swung sharply due to external factors, including the United States' imposition of retaliatory tariffs on the EU and the possibility of a U.S. federal government shutdown. The 21st of last month, when the rate broke above 1,480 won intraday, was when tensions between the United States and the EU over Greenland peaked. After President Trump said on Truth Social on the 17th (local time) that he would impose tariffs on eight European countries, U.S. Commerce Secretary Howard Lutnick said at the World Economic Forum (WEF) in Davos, Switzerland, on the 20th, "If Europe responds to the U.S. tariff measures, we will return to a 'tit-for-tat' phase." When geopolitical uncertainty grows, risk-off sentiment strengthens among investors and demand for the won, which is not a key currency, falls.
Afterward, President Trump met with NATO Secretary-General Mark Rutte and announced the cancellation of the tariffs planned on the EU, stabilizing the exchange rate. At the time, Trump said on social media, "Based on a very productive meeting with Secretary-General Rutte, we have established a framework for future negotiations related to Greenland." However, the specifics have not been disclosed to date.
The surging exchange rate cooled on the possibility of a U.S. federal government shutdown. After a series of cases in which U.S. citizens were killed in shootings by Immigration and Customs Enforcement (ICE) agents, Democratic senators raised issues on the 24th (local time) with the Department of Homeland Security budget bill. That reduced demand for dollars, which in turn supported the won. Because of this, the rate fell to 1,419.5 won on the 28th of last month (won strength). It was the first time in about three months that the rate fell below 1,420 won. In addition, news that U.S. and Japanese foreign exchange authorities could intervene in the market to support the yen also fueled a decline in the dollar's value.
The problem is that such exchange-rate volatility increases the burden on exporters and importers. When the rate swings widely as it does now, corporations use hedging transactions to reduce foreign-exchange losses when settling trade payments. If the fluctuation range does not narrow, corporations will have to continue to bear the expense associated with hedging transactions. Cho Yong-gu, a researcher at Shinyoung Securities, said, "The current level of the exchange rate itself is higher than in May, so the perception of risk (over the wider fluctuation range) is greater."
Meanwhile, on Feb. 2, the first trading day of February, the exchange rate also showed wide swings, rising more than 17 won in a single day. The move followed the nomination of former Federal Reserve Governor Kevin Warsh, 56, as the next chair of the Federal Reserve (Fed). It has become harder to predict the Fed's interest-rate policy under Warsh. Warsh has been categorized as a hawk (favoring monetary tightening). But recently, some have argued that he could act like a dove (favoring monetary easing) in line with President Trump's intentions as the appointing authority.