Last month, the won strengthened at the fastest pace since the global financial crisis. The supply of dollars into the market from SK hynix American depositary receipt (ADR) issuance proceeds and export receipts played a role. Some predict the exchange rate could fall below the 1,400-won level. The dollar shortage that had fueled won weakness has eased, and the Bank of Korea's policy rate hike is narrowing the Korea-U.S. rate gap.
According to the Seoul foreign exchange market on the 2nd, the won-dollar rate closed at 1,424.0 won at the end of weekly trading on the 31st. Compared with 1,549.4 won at the end of June a month earlier, it fell 125.4 won. On a monthly drop basis, it was the largest since March 2009 (down 150.5 won), when the rate swung sharply. In terms of appreciation, it reached 8.81%, the biggest since then (10.88%).
Even at the start of last month, the mood was different. On the 1st, it jumped intraday to 1,559.2 won, on the verge of breaking 1,560 won, but within two days the trend reversed and it fell more than 30 won. It then settled into the 1,400-won range, and in just the final week (27–31) it dropped another 42.6 won. On the 30th, it slid intraday to 1,418.0 won, the lowest in nine months since October last year, before finishing at 1,435.5 won on the 31st.
The won's rise stood out even among major currencies. Based on the New York close, at the end of last month the won was up 7.95% from the end of June, ranking first in gains among the Group of 20. The Japanese yen (+3.15%), Swedish krona (+1.91%) and British pound (+1.63%) were also stronger, but they lagged the won.
Supply and demand drove the won higher. With foreign investors' stock rebalancing flows easing, SK hynix and exporters unloaded dollars, and that appears to have coincided with market intervention by the foreign exchange authorities of Korea, the United States and Japan. Regarding the rate's slide below 1,420 won on the night of the 30th, the market points to joint intervention by the three countries as the cause.
As the rate slipped, demand picked up from those looking to buy dollars on the cheap. Last month, individuals exchanged 285 million dollars into cash at the five major banks, up about 74% from June. As of the end of last month, dollar deposit balances also increased to 70.833 billion dollars, adding 5.789 billion dollars in a month to post the biggest rise this year.