Won-Dollar Exchange Rate Approaches 1,330 Won... How High Can It Go?

Foreign Exchange Market Volatility Continues... May Rise Up to 1350 Won

On the 19th, the won-dollar exchange rate started at 1,326.0 won, up 5.3 won from the previous trading day (1,320.7 won), at the Hana Bank dealing room in Jung-gu, Seoul. On the same day, the KOSPI opened at 2,510.72, up 2.67 points (0.11%) from the previous trading day. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Seo So-jeong] Concerns are growing as the won-dollar exchange rate soars to its highest level this year.

According to the Seoul foreign exchange market on the 21st, the won-dollar exchange rate reached 1,328.8 won intraday on the 19th, setting a new yearly high. The previous yearly high was 1,326.7 won recorded on the 15th of last month, breaking the record in about a month.

The won-dollar exchange rate, which surged toward 1,330 won, reversed after hitting the peak and closed at 1,325.9 won. The release of the minutes from the July Federal Open Market Committee (FOMC) meeting of the U.S. Federal Reserve (Fed) revived concerns about tightening, driving the exchange rate up. Some Fed officials have raised the possibility of a giant step (a 0.75 percentage point increase in the benchmark interest rate) at the next month’s FOMC meeting.

There have been three occasions in the past when the won-dollar exchange rate consistently exceeded the 1,200 won level. During the foreign exchange crisis and financial crisis, the exchange rate surged close to 2,000 won and 1,600 won, respectively. In the early 2000s, during the dot-com bubble burst, the rate remained at a high level in a plateau form without a strong spike.

Oh Chang-seop, a researcher at Hyundai Motor Securities, said, "Among the three past peaks in the exchange rate, the recent situation is similar to the early 2000s IT bubble burst," adding, "At that time, the Nasdaq was undergoing a correction, and the yen and euro were weakening, creating a situation similar to now."

Experts predict that significant volatility will continue in the foreign exchange market as the global monetary tightening and economic slowdown pace are gauged. Kim Ye-in, a researcher at Korea Investment & Securities, said, "With sluggish dollar inflows from commodity trade, the most important dollar supply channel, the won is expected to remain under pressure from net dollar outflows in the second half."

Researcher Kim added, "When volatility expands, the won-dollar exchange rate will gradually increase its level," and forecasted, "The 1,330 won level will serve as a meaningful support line, and if it is surpassed, the exchange rate is expected to test new highs in increments of 10 won."

Researcher Oh said, "As the U.S. is likely to continue raising interest rates until the end of this year, the dollar’s strength is expected to persist in the second half," adding, "From a supply and demand perspective, the won’s depreciation pressure is expected to continue, with the upper bound in the second half projected around 1,350 won."