Exchange rate not responding to measures…Will it reach the 1,500-won range next year?

Despite the government easing banks' foreign exchange regulations and applying broad pressure on companies and securities firms, the won–dollar exchange rate continued its high-level march. With high exchange rate expectations solidifying, some forecasts predict the exchange rate could reach 1,500 won next year.

On the 18th in the Seoul foreign exchange market, the won–dollar exchange rate (as of 3:30 p.m.) closed the week at 1,478.30 won, down 1.50 won from the previous day. The rate opened at 1,477.30 won and rose to 1,479 won in early trading. At one point in the morning, volumes presumed to be intervention by authorities emerged near the previous day's closing price (1,479.80 won), pushing the rate down to 1,472 won, but after the government announced its measures the rate instead rose and traded around 1,478 won throughout the afternoon. Analysts suggested this was because the government's measures were gaining traction as unlikely to have a major impact on the market.

The emergence of risk-averse sentiment, triggered by profitability controversies across the artificial intelligence (AI) industry, was also seen as a cause. Foreign investors net-sold 357.1 billion won on the KOSPI and 89.8 billion won on the KOSDAQ that day.

The fact that the exchange rate did not exceed 1,480 won was interpreted as investors viewing the high point as the high 1,470-won range. Min Kyung-won, an economist at Woori Bank, explained, "Although it temporarily exceeded 1,480 won the previous day, no further increase occurred, strengthening the perception that the peak is in the 1,470-won range." The dollar index, which shows the value of the dollar against six major currencies, was flat around 98.39 and did not have a large impact on the exchange rate.

With the exchange rate remaining in the 1,470-won range despite the government's consecutive measures, experts' exchange rate forecasts have also risen. Korea Investment & Securities projected next year's won–dollar exchange rate at 1,350–1,500 won, formalizing the possibility that the rate could rise to 1,500 won if the foreign exchange market overheats. It raised its average annual exchange rate forecast to 1,420 won, up 30 won from early last month. Moon Da-woon, a researcher at Korea Investment & Securities, said, "It seems that expectations for the upper and lower bounds of an increased exchange rate will not easily come down," and "A structural increase in the exchange rate may occur next year as well."

Kang Jin-kyu reporter josep@hankyung.com