Overseas Stock Buying Fuels Dollar Demand, Raising Risk Won Stays in 1,500 Range

South Korean residents’ growing investment in overseas securities, combined with broad dollar strength, has structurally pushed up the won-dollar exchange rate, according to a new analysis. The report argues the exchange rate moved to a higher band in 2024 and is unlikely to quickly return to past levels.

Park Hae-sik, a senior research fellow at the Korea Institute of Finance, laid out that view in a report titled "Assessment of the Possibility of a Structural Upward Shift in the Won-Dollar Exchange Rate" on July 4. The report was written in April, when the average exchange rate stood at 1,485.0 won per dollar based on regular trading session closing prices.

The won-dollar exchange rate has risen gradually since the mid-2010s, the report said. Through the first half of 2024, it mostly traded in the 1,200 won to 1,300 won range. The pattern changed in the second half of 2024. Except for temporary dips into the 1,300 won range, it held in the 1,400 won to 1,500 won range.

Park analyzed exchange-rate movements from January 2015 through April 2026 and identified three structural breaks: April 2019, April 2022 and March 2024. The average exchange rate also stepped up over time. It averaged 1,168.7 won in the first period, then rose to 1,312.4 won. Since March 2024, it has climbed to 1,408.2 won.

The report attributed the rise in part to increased overseas securities investment. As South Korean residents invested more abroad, demand for dollars grew. Global dollar strength also added pressure on the won. Park wrote that upward pressure on the exchange rate remains elevated and projected that trend would continue through February 2027.

"If there are no additional shocks ahead, the exchange rate is more likely to remain near current levels than to return quickly to past levels," he said.

Park also said financial companies should prepare for a prolonged period of a weak won. "Domestic financial firms need to closely examine how an extended high exchange-rate environment affects profitability and capital adequacy," he said.

The won has weakened further since the report was written. As of July 3, the won-dollar exchange rate had closed above 1,500 won per dollar for 34 consecutive regular trading sessions. On July 1, it surged as high as 1,559.2 won intraday.

Lee Song-ryeol, Hankyung.com reporter yisr0203@hankyung.com