Korea Investment & Securities Lowers Dollar-Won Forecast... Expects Fluctuation Between 1,350 and 1,450 Won

Korea Investment & Securities stated that, following the recent surge in the value of the Taiwan dollar, concerns are growing that U.S. President Donald Trump may demand currency appreciation from major countries. The firm expects the won-dollar exchange rate to fluctuate between 1,350 and 1,450 won per dollar for the time being.

Moon Daun, a researcher at Korea Investment & Securities, said in a report titled "Exchange Rate Outlook Update & Concerns over Plaza Accord ver2" released on May 9, "We are lowering our previous quarterly average level forecast for the dollar-won path by 30 won."

Moon explained, "It is difficult to gauge the extent of further declines, but in the short term, there appears to be pressure for the rate to revert toward the 1,400 won level." He added, "Given the unclear direction of the U.S. dollar, we expect the rate to fluctuate in the 1,350 to 1,450 won range, centering around 1,400 won for the time being." Accordingly, Korea Investment & Securities revised its quarterly average dollar-won exchange rate forecasts to 1,400 won for the second quarter, 1,370 won for the third quarter, and 1,380 won for the fourth quarter.

The background for this revision is the recent sharp appreciation of the Taiwan dollar, which caused the dollar-won exchange rate to drop below 1,400 won in a single move. He noted, "The pace and magnitude of the decline are faster and steeper than previously anticipated," and diagnosed, "While a short-term rebound may occur due to bargain buying or dollar movements, the trend has clearly shifted downward."

Moon also relayed recent market concerns, stating, "In early May, reports emerged that the Taiwanese government might allow its currency to appreciate as a concession in tariff negotiations with Trump, causing the Taiwan dollar to surge by 9% in a short period." He added, "Although the Taiwanese government has completely denied these reports, suspicions?whether true or not?still linger in the market." He continued, "South Korea has a similar economic structure and, coincidentally, records a similar trade surplus to Taiwan. If Trump uses the exchange rate as a bargaining chip for tariff relief, it will be difficult for South Korea to avoid facing similar demands."

In the report, Moon outlined scenarios in which the dollar-won exchange rate could drop sharply: ▲ a rapid decline in the U.S. dollar due to a U.S. economic recession or loss of confidence, and ▲ market expectations that the government will allow currency appreciation, as in Taiwan's case, regardless of whether it is true or not. He added that if President Trump demands that South Korea appreciate the won, "since the won has been significantly undervalued for a considerable period, the drop in the dollar-won rate could rapidly expand by at least 10%."