In the second quarter this year, the average won-dollar exchange rate topped 1,500 won. It is the first time in 28 years and 3 months that the quarterly average has risen into the 1,500-won range, since the first quarter of 1998 (1,596.8 won) during the foreign exchange crisis.
According to the Bank of Korea Economic Statistics System (ECOS) on the 28th, the won-dollar exchange rate averaged 1,500.1 won based on weekly transaction closing prices from Apr. 1 to the 26th of this month. Unless it plunges early this week, the full second-quarter average is also expected to exceed 1,500 won. The won-dollar has already failed to come down into the 1,400-won range for 29 trading days. It is about 40–50 won higher than the first quarter of 2009 during the global financial crisis (1,418.3 won), as well as the first quarter this year (1,466.9 won).
The key driver of the won's weakness is foreigners' net selling of domestic stocks. Foreign investors sold 136.7841 trillion won worth in the KOSPI market from the start of the year to the 26th of this month, and net selling this month alone is nearing 37 trillion won. The securities industry estimates additional net selling capacity at 100–150 trillion won.
Even after foreigners kept selling, their equity share in the KOSPI market rose to 41.42% from 36.28% at the end of last year, driven by a sharp jump in prices of large-cap holdings. The market expects monthly net selling of about 30–40 trillion won to continue for around three months. The prevailing view is that the exchange rate is unlikely to fall sharply in a short period.
Dollar strength, stemming from waning expectations for U.S. benchmark rate cuts, is also pressuring the won. The dollar index rose intraday to 101.798 on the 24th, a record high in 13 months. The won has also moved in tandem with the weak yen, and the yen-dollar reached 161.939 yen intraday on the 25th.
Starting on the 6th of next month, the won-dollar will trade 24 hours in the Seoul foreign exchange market. The current transaction hours of 9 a.m. to 2 a.m. the next day will be extended to 6 a.m. Monday to 6 a.m. Saturday. However, the dominant view is that the impact on the exchange rate level itself will be limited.