FX Rates, Bonds Hit by Escalating Middle East War… Will the Won Slide to 1,470 per Dollar?

The won-dollar exchange rate is expected to jump sharply this week as the fallout from the war between the United States and Iran spreads. The longer-term direction is likely to depend on how long the war lasts.

According to the Seoul foreign exchange market on the 2nd, the won-dollar rate, which started last week in the 1,440-won range, ended at 1,444 won in overnight trading on the 28th of last month. The exchange rate was volatile last week, swinging between the 1,420- and 1,440-won levels. On the 25th of last month, it fell as low as 1,427.80 won. At the time, as expectations grew for U.S.-Iran nuclear talks, risk-on sentiment weakened. Afterward, as foreign investors continued a streak of net selling in the stock market, the exchange rate climbed back into the 1,440-won range.

This week’s exchange rate is expected to be influenced by the Middle East war. Safe-haven demand has strengthened after the United States and Israel launched a surprise attack on Iran on the 28th of last month. In New York’s non-deliverable forward (NDF) market on the 2nd, the exchange rate has been trading around the 1,460-won level. It could climb back into the 1,470-won range this week.

The exchange-rate trajectory is expected to hinge on how the war develops. If the conflict ends quickly, the possibility of a downward stabilization remains open. On June 22 last year, the day after the United States struck three nuclear facilities in Iran with B-2 stealth bombers, the exchange rate jumped 8 won. But the following day, on June 24, 2025, the exchange rate plunged 20.60 won.

The bond market is holding in the 3% range. On the 27th of last month, the yield on the three-year Korean Treasury Bond ended at 3.041% per annum, down 0.102 percentage point from the previous week. This was seen as reflecting Bank of Korea Governor Rhee Chang-yong’s remarks at a press briefing on the 26th of last month that the gap between KTB yields and the policy rate (2.50% per annum) is excessive. Kim Chan-hee, a researcher at Shinhan Securities, said, "As the economy improves, upward pressure on rates has not disappeared," adding, "Government bond yields are likely to remain range-bound for the time being."

Reporter Kim Ik-hwan lovepen@hankyung.com