The won-dollar exchange rate against the U.S. dollar closed weekly trading at 1,340.5 won at 3:30 p.m. on the 7th. It fell 9.9 won (0.73%) from the previous trading day's weekly close. This is the lowest level in about 1 year and 11 months since Oct. 4, 2024 (1,333.7 won). It is also the first time the rate has been in the 1,340-won range since Oct. 11, 2024 (1,349.5 won).
The rate opened at 1,347.8 won at 6 a.m., rose to 1,349.5 won around 7:48 a.m., then quickly reversed lower to 1,334.7 won at 9:59 a.m. It is the first time the rate has shown the 1,330-won range intraday since Oct. 4, 2024 (1,331.3 won).
Contrary to forecasts that the rate could rise into the 1,350-won range, the decline was strong. Although the dollar strengthened as the likelihood of the United States raising its benchmark rate increased, selling of dollars was seen as even heavier, mainly among major export corporations. Dollars earned by corporations amid an export boom led by semiconductors are being released into the market, pulling the rate down. When dollar selling increases in the Seoul foreign exchange market, the won shows relative strength and the rate falls.
Net buying of domestic stocks by foreign investors also affected the decline in the rate. Foreign investors recorded net purchases of 2.5869 trillion won in the main bourse that day. When foreign investors exchange dollars into won to buy domestic stocks, the rate tends to fall.
Foreign-exchange market participants are forecasting that the won will show strength (a lower rate) for the time being. Although the conversion effect from SK hynix American depository receipts (ADR) is winding down, there is a high likelihood that SK hynix and Samsung Electronics will convert dollars they hold into won for large-scale shareholder returns.
A narrowing Korea-U.S. interest-rate gap is also one of the factors behind the rate's decline. The Bank of Korea raised the benchmark rate by 0.25 percentage point in both July and August. Accordingly, the gap with the United States narrowed from 1.25 percentage points to 0.75 percentage point, the smallest since September 2022. Bank of Korea Governor Shin Hyun-song said at a press conference following the latest rate hike that there is room for the won to gain further.
However, rising international oil prices amid worsening conditions in the Middle East are a burden. As the rate falls quickly, demand to buy dollars at lower prices is expected to expand. When demand to buy dollars increases, the rate rises.
A lower rate can support price stability and a recovery in domestic demand because the cost of importing raw materials and other goods from overseas becomes cheaper. On the other hand, export corporations may be negatively affected because a lower rate is akin to a drop in export prices.