Won-Dollar Exchange Rate Expected to Reach Upper Limit of 1450 Won
Although the state of emergency has been lifted, the won-dollar exchange rate is expected to experience increased volatility for the time being and could rise to 1,450 won. The political uncertainty caused by the declaration of the state of emergency is also seen as a burden on the domestic economy, which is likely to further weaken the won in the short term.
On the morning of the 4th, the won-dollar exchange rate was fluctuating in the 1,410 won range as of 9:10 a.m. in the Seoul foreign exchange market. The won-dollar exchange rate opened at 1,418.1 won, up 15.2 won from the previous trading day's closing price at 3:30 p.m.
The won-dollar exchange rate, which closed at 1,402.9 won during the weekly trading session at 3:30 p.m. the previous day, surged to 1,442.0 won around 12:30 a.m. during night trading after President Yoon Suk-yeol declared the state of emergency around 10:30 p.m. However, it somewhat calmed down after news broke around 1 a.m. that the National Assembly plenary session had passed a resolution demanding the lifting of the state of emergency, closing at 1,425.0 won at 2 a.m. The intraday high of 1,442 won was the highest since October 2022.
The aftershocks in the foreign exchange market caused by the declaration of the state of emergency are expected to continue for some time. Experts predict that the won-dollar exchange rate will remain above the 1,400 won level and experience increased volatility in the short term. In the mid to long term, there is also a possibility that this state of emergency issue could negatively impact foreign investors' external confidence in Korea, worsening capital supply and demand.
Park Sang-hyun, a researcher at iM Securities, said, "If political uncertainty continues for the time being, the won-dollar exchange rate will inevitably remain in the 1,400 won range. Since political uncertainty also burdens the domestic economy, it is difficult for the won to strengthen, so I see the lower bound at 1,380 won and the upper bound at 1,450 won." He added, "With central banks around the world holding interest rate policy meetings in December, the won-dollar exchange rate will likely see increased volatility for the time being."
Min Kyung-won, a researcher at Woori Bank, said, "Due to this incident, political instability in Korea is expected to expand, which will inevitably worsen investment sentiment toward won-denominated assets such as the KOSPI and Korean government bonds. As investment sentiment toward won assets deteriorates, preference for the dollar will increase, and the won-dollar exchange rate is expected to remain in the 1,410 to 1,420 won range."
Kwon Ah-min, a researcher at NH Investment & Securities, said, "Currently, Korea's foreign exchange reserves and short-term external debt are stable, so the upper bound is expected to be capped around 1,440 won." However, he added, "In the mid to long term, due to the expansion of political uncertainty, foreign investors' external confidence in Korea may decline, which could worsen supply and demand linked to this, so it should be closely monitored."
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