If the Strait of Hormuz blockade lasts beyond two months… a ‘1,500-won’ high won-dollar rate could persist for six months

KITA: “Assuming a pessimistic scenario in the event of escalation”

“Rate hikes and growth slowdown will overlap”

Some in the market also see a ‘ceiling of 1,550 won’

A forecast has emerged that if restrictions on the Strait of Hormuz stemming from the Middle East war persist for two more months, the won-dollar exchange rate could remain above the 1,500-won level for the next three to six months. With variables such as the potential deployment of US ground forces and the participation of Yemen’s Houthi rebels widening the front, some market participants also say the exchange rate could open up to the mid-1,550 won range at its peak.

According to a report titled “Drivers of fluctuations in the won-dollar exchange rate and an assessment of the outlook” released on the 31st by the Korea International Trade Association (KITA), in a worst-case scenario in which the Middle East war spreads into a full-scale conflict and restrictions on the Strait of Hormuz continue for more than three months, the won-dollar exchange rate could top 1,500 won for three to six months. The report said this “pessimistic scenario” reflects a range of factors, including inflationary pressure from a prolonged rise in international oil prices, the possibility that the US Federal Reserve and the Bank of Korea shift toward rate hikes, and concerns about slower growth due to supply-chain disruptions.

Even under the “base-case scenario,” in which the war remains localized and cools within about three months, the exchange rate was seen hovering around 1,500 won through the first half before gradually stabilizing to the upper-to-mid 1,400s thereafter. The researchers said they view the point at which the real economy begins to feel the impact and policy responses change as the benchmark for judging whether conditions become prolonged, and they presented the range of potential FX authorities’ intervention as an upper bound of 1,530 won and a lower bound of 1,390 won.

The won-dollar exchange rate has repeatedly moved up and down in the 1,500s since mid-month. In Seoul’s FX market, it first breached 1,500 won on the 19th on a closing basis for daytime trading and, except for the 24th and 25th, has continued to finish trading in the 1,500s.

On the 30th, the exchange rate rose 6.8 won from the previous session to 1,515.7 won, up 91.2 won from the pre-war close on the 27th of last month (1,424.5 won). Upside pressure has persisted as the market prices in concerns over a widening front, including the possibility of US ground force deployment and the Houthi rebels’ entry into the conflict.

The KITA report said that if external uncertainties re-emerge—such as the US midterm elections in November and the end of a tariff truce—drivers of dollar strength could persist, keeping the exchange rate elevated while it adjusts only gradually. It added that the pace of declines could be limited toward year-end.

Park Subin, Hankyung.com reporter waterbean@hankyung.com