As the dollar-won exchange rate soared to its highest level since March 2009, securities analysts have expressed a low likelihood of the rate surpassing or stabilizing at 1500 won per dollar. It is expected that domestic factors, rather than U.S.-imposed reciprocal tariffs, will be the key variables.
Park Sang-hyun, a researcher at iM Securities, stated in his report titled "Exchange Rate at Its Highest, Growth Rate at Its Lowest Since the Financial Crisis" on the 1st, "The solo depreciation of the won appears to be significantly influenced by domestic political and consumption uncertainties."
The dollar-won exchange rate closed at 1472.9 won based on the previous day's closing price, marking the highest level since March 13, 2009, during the global financial crisis. Park noted, "What is more concerning is that unlike other currencies, only the won is showing weakness," citing recent factors for the sharp rise in the exchange rate (value decline) such as the implementation of U.S. reciprocal tariffs and domestic economic fundamentals. Despite fears of reciprocal tariffs under the Donald Trump administration, the euro, yen, and yuan have maintained a firm or slightly strong trend, unlike the won.
Park explained, "The implementation of reciprocal tariffs could increase pressure on the domestic export market, including exports to the U.S., which may act as an additional downward pressure on domestic growth rates," adding, "The prolonged domestic political uncertainty leading to policy inaction and the recent emergence of credit risks centered on construction and retail companies are causing differentiation between the won and other currencies," highlighting the atmosphere of won depreciation.
He also pointed out, "The prolonged political uncertainty due to delays in the Constitutional Court's impeachment ruling is a factor in the won's weakness, but concerns over division or conflict regarding acceptance of the court's decision are further deepening the relative depreciation of the won," and added, "Excluding the COVID-19 period, the forecast that this year's domestic growth rate will be the lowest since the financial crisis is increasingly gaining traction, which is the fundamental factor best representing the relative weakness of the won."
Nevertheless, Park assessed that "the possibility of the dollar-won exchange rate breaking through or stabilizing at 1500 won is low." He said, "The reciprocal tariff risk has been somewhat reflected in the won's value. If Korea is not uniquely disadvantaged, the additional exchange rate increase due to reciprocal tariffs will be limited," and viewed, "Rather, additional upward pressure will come from domestic factors."
Park further explained, "If domestic political uncertainty continues to prolong, there is a possibility that a decline in Korea's international credit rating, the spread of domestic consumption instability due to policy gaps, and amplification of credit risks will act as additional downward pressure on the won's value," and analyzed, "Compared to external factors, domestic factors related to the domestic economic flow will play a decisive role in whether the exchange rate surpasses or stabilizes at 1500 won."
He also pointed out that the upcoming U.S. Treasury Department's exchange rate report to be released this month is an important variable, describing it as "another factor that could increase volatility in the global foreign exchange market." He said, "If the Trump administration uses the release of the exchange rate report as a turning point to highlight currency depreciation issues including the won, volatility in major currencies such as the euro and yen will increase," adding, "If there is a strong demand for currency appreciation related to reciprocal tariff rates, it will be difficult for major countries to reject it. The won's value is also likely to rise accordingly."
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