Despite US 'Weak Dollar Warning'... Exchange Rate Remains in Upper 1,420-Won Range, What Lies Ahead?

"Momentum for Dollar Decline, 'Secondary Effect' Drives Further Drop"
If 1,420 Won Breaks, Another Wave of Selling Possible... If Not, Consolidation Likely
Lower Levels Attract Real Dollar Demand... 1,410 Won Expected in First Half

The previous day, the won-dollar exchange rate plummeted to the 1,420 won level, bringing the average exchange rate for this month below 1,460 won. Overnight, the dollar’s decline in the US slowed somewhat, partially reversing the drop, but in early trading on this day, the rate continued to move in the upper 1,420 won range, remaining lower compared to the previous high of 1,478.1 won. Experts believe that, for the time being, the won-dollar exchange rate will continue to face downward pressure due to ongoing external momentum for a weaker dollar. However, they also predict that the lower end of the 1,400 won range will be supported, as bargain hunters step in to buy dollars at these lower levels.

On the 29th, dealers were working in the dealing room at the Woori Bank headquarters in Jung-gu, Seoul. On that day, the won-dollar exchange rate started trading at 1,429.60 won, up 7.1 won from the previous trading day.

Sharp Drop the Previous Day, January’s Average Exchange Rate at the 1,450 Won Level

On January 29, in the Seoul foreign exchange market, the won-dollar exchange rate opened at 1,429.6 won, up 7.1 won from the previous trading day, and fluctuated in the upper 1,420 won range in early trading. The previous day, the rate had plunged by 23.7 won to close at 1,422.5 won, marking the lowest level since October 20 of last year (1,419.2 won). This came amid concerns over a potential US federal government shutdown due to President Donald Trump’s threat to annex Greenland. Additionally, speculation that the US Federal Reserve could intervene in response to the strong yen further supported the weak dollar and strengthened the won. As a result, the average exchange rate for this month (January 1-28) fell to 1,458.7 won, the lowest since October of last year (1,424.8 won).

Overnight, the US issued statements cautioning against a weak dollar. On January 28 (local time), US Treasury Secretary Scott Bessent stated in a CNBC interview, in response to a question about whether the US was intervening to strengthen the yen, “That is absolutely not the case,” and added, “We have a strong dollar policy.” Following this, the yen weakened and the dollar regained strength. The yen-dollar exchange rate, which had plunged to the 152-yen range the previous day, is now fluctuating in the low 153-yen range. The dollar index, which measures the value of the US dollar against the currencies of six major countries, fell to 95.702 the previous day, its lowest level in four years, but is currently staying in the low 96 range. Kyungwon Min, economist at Woori Bank, commented, “The US response overnight seemed to signal caution against the dollar’s rapid decline, putting a slight brake on the dollar’s weakening trend,” but added, “Since the dollar’s trend has not shifted to a strengthening phase, the value of major currencies will likely see only mild adjustments.”

At the end of last year, the electronic board at the currency exchange booth in Terminal 1 of Incheon International Airport displayed the buying price of the US dollar.

Weak Dollar Momentum Continues… Downward Pressure on the Won-Dollar Exchange Rate Expected to Persist

Experts expect the ongoing external momentum for a weaker dollar to continue driving the won-dollar exchange rate lower. Although the pressure for a weaker dollar may ease with the US policy rate remaining unchanged overnight, the overall trend is unlikely to change significantly. Seokhyun Baek, economist at Shinhan Bank, said, “The current situation overlaps with the ‘Sell America’ episode of last April. At that time, global capital was selling US Treasuries, US stocks, and the dollar,” adding, “President Trump is adept at shifting the narrative by introducing stronger measures when faced with unfavorable conditions. The emergence of a dovish candidate for the next Fed chair, who has already demonstrated loyalty to Trump, will provide additional downward momentum for the dollar.”

Junghee Moon, chief economist at KB Kookmin Bank, also stated, “For the first quarter of this year, I see the lower bound at 1,380 won and the upper bound at 1,480 won, with the average around 1,430 won. In the short term, if the rate falls below 1,420 won, we could see another wave of selling, but if it holds above 1,420 won, a period of consolidation is likely.”

However, Dollar Bargain Buying Expected to Support the Lower End… Movements Around 1,420 Won Remain a Variable

However, there are expectations that whenever the exchange rate drops, demand for currency exchange from residents investing in overseas stocks, as well as aggressive buying by importers for payment settlements, will provide support at the lower end. Daun Moon, researcher at Korea Investment & Securities, said, “Currently, the environment is dominated by downward pressure on the exchange rate from both economic and policy perspectives,” but also noted, “It is difficult to say that sentiment for a weaker won has been completely broken, so real demand for dollars will emerge whenever the rate drops.” The outlook is that the won-dollar exchange rate will gradually lower its floor in the first half of the year, repeating a pattern of slight rebounds after declines.

Experts believe the rate could rise in the second half of the year compared to the first half, as the structural imbalance in domestic supply and demand has not fundamentally changed. The main variables for the exchange rate include the US Federal Reserve’s interest rate trajectory, Trump’s tariffs, the US midterm elections in November, and the continuation of the global artificial intelligence (AI) investment boom. Moon commented, “While I think the rate could fall to the 1,410-1,420 won range in the first half, it will be difficult for it to go lower in the second half. With delays in US rate cuts and ongoing inflation concerns, I expect the rate to hover in the low 1,400 won range.”