Sangsangin Securities Lowers Dollar-Won Exchange Rate Floor for This Year from 1,330 Won to 1,300 Won

Sangsangin Securities announced on the 21st that additional factors supporting a stronger Korean won have emerged during the ongoing trade negotiations with the United States, and accordingly, the company has revised its lower bound forecast for the dollar-won exchange rate this year from 1,330 won to 1,300 won.

Choi Yechan, a researcher at Sangsangin Securities, stated in a report titled "Exchange Rate Negotiations: How Far Could the Dollar-Won Exchange Rate Fall?" released on this day, "Exchange rate negotiations are a factor that could push the dollar-won exchange rate down to around 1,300 won due to the strengthening of the Korean won."

Choi explained, "Our outlook for the second half of the year anticipated a gradual strengthening of the Korean won in a weak-dollar environment. However, as trade negotiations progress, additional variables supporting a stronger won are emerging. The most significant variable is the exchange rate negotiation itself. Therefore, we are revising the lower bound for the dollar-won exchange rate in 2025 from 1,330 won to 1,300 won."

He also pointed out, "A notable feature of the foreign exchange market in May is that the undervaluation of the Korean won relative to the dollar index has been significantly reduced." He analyzed this as a result not only of domestic factors but also of a considerable easing of concerns regarding recent U.S. trade policies.

He added, "Now, the foreign exchange market's attention is shifting to the outcomes of trade negotiations, including exchange rate negotiations. The impact of exchange rate negotiations is considerable." He cited the example that, during previous trade negotiations between Taiwan and the United States, mere expectations that the value of the Taiwan dollar would be allowed to strengthen led to an approximately 8% drop in the Taiwan dollar exchange rate over two trading days. Similarly, the dollar-won exchange rate plunged to the 1,380 won range on May 14 following news that the Ministry of Economy and Finance had discussed exchange rate-related matters. However, the rate stabilized immediately after reports emerged that the United States would not include exchange rates as an agenda item in the trade negotiations.

Choi further noted, "Rather than focusing on the rhetoric of the Donald Trump administration, we should pay attention to its actions." He predicted, "In order to simultaneously maintain the dollar's hegemony and pursue a weaker dollar, the administration may outwardly advocate for a strong dollar, while in practice taking actions that induce dollar weakness." Accordingly, he expects that future trade negotiations will involve a combination of partial tariff reductions, appreciation of the Korean won, and purchases of U.S. Treasury bonds. He emphasized, "To substitute for tariffs, a corresponding appreciation of the Korean won is inevitable."

He analyzed, "From Korea's perspective, a high exchange rate has been a burden on the Bank of Korea's ability to lower interest rates, so stabilization of the exchange rate at an appropriate level?meaning appreciation of the won to offset tariffs?would likely be viewed positively. An appreciation of the currency to the 1,300 won level essentially resolves the undervaluation and should not pose a significant burden."

He added, "Even in the absence of exchange rate negotiations, trade negotiations alone have already resulted in appreciations of the respective countries' exchange rates. As trade negotiations proceed in stages, the short-term undervaluation of the Korean won is expected to become more visibly resolved."