"V-Shaped Exchange Rate Trend This Year"
"High Volatility Expected Next Year"
Focus on 'Why Is the Won Weak?' Rather Than 'Why Is the Dollar Strong?'
Amid ongoing exchange rate instability, with the won-dollar rate recently surpassing 1,470 won per dollar, there are projections that high volatility will continue into next year.
Oh Geonyeong, Head of Shinhan Premium Pathfinder, appeared on CBS Radio's "Kim Hyun-jung's News Show" on December 16 and said, "This year, the won-dollar exchange rate surged to 1,480 won right after President Trump’s election victory, then seemed to stabilize, dropping to 1,347 won in June and July. However, it soared again, showing a 'V-shaped' trend. As the exchange rate rises, there is a growing perception that the higher exchange rate level is being accepted as the 'new normal' compared to the past."
Oh explained, "From a global perspective, the dollar is weak. When President Trump was elected on November 5 last year, the won-dollar exchange rate was 1,380 won, but it is now around 1,460 to 1,470 won, up about 80 won or roughly 6%." He continued, "At that time, the euro was about 1,500 won, but now it is around 1,730 won, an increase of about 15%. The euro is overwhelmingly strong against the dollar."
He noted, "Since exchange rates reflect relative value, even if the U.S. economy is not particularly strong, if risks arise in the Korean economy, the exchange rate can still rise." He emphasized, "If we approach the current exchange rate from the perspective of 'Why is the dollar strong?' we will not find the answer. Instead, we must focus on why the won is weak."
As the won/dollar exchange rate continues to rise and foreign exchange authorities discuss countermeasures, the exchange rate is displayed at a currency exchange booth on Myeongdong Street in Seoul on the 15th. On this day, the won/dollar exchange rate opened at 1,476.0 won, up 2.3 won from the previous trading day. Photo by Yonhap News Agency
He cited the synchronization with the yen as the primary reason for the won's weakness. Oh stated, "There is a possibility that Japan will raise interest rates this week, causing the yen to stall. As a result, the won is also moving in sync, with the won-dollar rate approaching 1,480 won."
The expansion of overseas investments was also mentioned as a factor weakening the won. He said, "The overseas investments by individual Korean investors also have an impact. Since this structure requires buying dollars to invest in U.S. stocks or bonds, there is inevitably increased demand for dollars." He added, "Korean companies are also considering direct overseas investments to avoid tariff burdens."
Regarding the impact of a high exchange rate on the domestic economy, Oh said, "A rapid rise in the exchange rate is certainly not beneficial for our economy. A sharp increase in the exchange rate leads to higher import prices, which in turn intensifies inflationary pressure." He further pointed out, "If the base interest rate is cut in such a situation, the exchange rate could rise even faster. Stabilizing the exchange rate is absolutely necessary."
On the outlook for next year’s exchange rate, he commented, "This year’s exchange rate trend was a classic V-shape, which was closely related to the Trump administration. Next year, with various events in the U.S. economy such as Supreme Court tariff rulings, a change in the Federal Reserve Chair, and the midterm elections, the won-dollar exchange rate is likely to show high volatility in both directions." He added, "Rather than expecting the exchange rate to move in only one direction, we should keep in mind that high volatility may persist and be cautious about leaning too heavily to one side."
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