Ceasefire Hopes Lift Won, but It Fails to Break Below 1,500 Per Dollar

News of a ceasefire agreement sent the won-dollar exchange rate and South Korean government bond yields sharply lower.

In Seoul trading, the won ended the daytime session at 1,511.1 per dollar, 8.7 won stronger than the previous close. It was the strongest level since March 27, when the currency finished at 1,508.9. The won also rose as much as 1,503.9 intraday.

The move came after international oil prices tumbled on news that the US and Iran plan to sign a memorandum of understanding on June 19 to end the conflict. West Texas Intermediate futures fell more than 5% to trade around $80 a barrel.

Still, the won did not break below 1,500 per dollar. Dollar selling remained limited as markets could not fully rule out the possibility that Iran may again move to block the Strait of Hormuz if the MOU is not properly implemented. Another concern is that Washington and Tehran may interpret the extent of the strait's reopening differently. The US is focused on restoring free navigation, while Iran maintains that it would keep control and management authority over the waterway.

Expectations for a Bank of Japan rate increase on June 16 also capped further declines in the won-dollar exchange rate. Foreign investors are also known to be continuing custody-driven dollar buying, which involves selling won to buy the US currency.

“The key variable for the exchange rate is whether the Strait of Hormuz can be fully reopened,” Lee Yoo-jung, a researcher at Hana Bank, said. “If the reopening is confirmed, exporters will rush to sell dollars. The pace of the exchange rate's decline will also accelerate, pushing it below 1,500 won per dollar.”

Shim Sung-mi, Hankyung.com reporter smshim@hankyung.com