Won-Dollar Exchange Rate Hits 1,470 Won in 50 Days... "Volatility Increases Due to Political Risks" [Hankyung Foreign Exchange Market Watch]

The won-dollar exchange rate rose to the 1,470 won level in 50 days (the value of the won fell). Analysts suggest that volatility has increased due to ongoing domestic political uncertainties, such as the delay in the impeachment ruling of President Yoon Suk-yeol. However, even if the impeachment decision is made, the possibility of a rapid decline in the exchange rate is low if the increase in overseas investments by locals and the global preference for safe assets continue.

○ Exchange Rate Rises Due to Political Uncertainty

On this day, the won-dollar exchange rate in the Seoul foreign exchange market (as of 3:30 PM) ended weekly trading at 1,469 won 20 jeon, up 1 won 50 jeon from the previous day. The exchange rate slightly increased right after the market opened, reflecting the strong dollar sentiment. It then peaked at 1,471 won 10 jeon around 11 AM. It has been about 50 days since the exchange rate exceeded the 1,470 won level in weekly trading, since the 3rd of last month (1,472 won 50 jeon).

Experts believe that the recent rise in the exchange rate is due to domestic political uncertainties. Lee Min-hyuk, a researcher at KB Kookmin Bank, said, "In the current market atmosphere, the won seems to be more affected by domestic political issues." Park Sang-hyun, a researcher at iM Securities, said, "It could rise to 1,490 won in the short term."

Min Kyung-won, an economist at Woori Bank, explained, "Since March, the Turkish lira and the Korean won have significantly depreciated amid the global weak dollar trend, and the option market, which had withdrawn bets on exchange rate increases since January, has started to increase bets on exchange rate rises again as the impeachment ruling is delayed."

○ Even if Impeachment Decision is Made, '1,450 Won'

The problem is that even if the political factors are resolved through the impeachment ruling, it is difficult for the exchange rate to decline rapidly. Analysts suggest that global economic conditions, such as tariff uncertainties from the Trump administration, increased overseas investments by locals, and the preference for safe assets, are structurally holding back the value of the won.

The mutual tariff imposition by the Trump administration, scheduled for the 2nd of next month, is expected to affect the foreign exchange market depending on the level of tariffs on Korea. Researcher Park Sang-hyun predicted, "The possibility of Korea being included in the 'dirty 15' countries mentioned by U.S. Treasury Secretary Scott Bessent as targets for high tariffs increases the possibility of a weak won."

The global preference for safe assets is also a burden on the won. Park Soo-yeon, an economist at Meritz Securities, said, "There seems to be no 'macroeconomic' reason for the exchange rate not to fall," and "It can be explained to the extent that there was a lack of attractiveness as a safe asset currency to replace the dollar." The won is a representative risk asset. While the value of other safe assets such as the euro surged during the weak dollar period, the value of the won has rather declined. Kwon Ah-min, a researcher at NH Investment & Securities, predicted, "The possibility of the won-dollar exchange rate falling after the impeachment ruling is high, but the decline will be limited." He viewed that the structural increase in overseas investments by locals is solidly supporting the lower bound of the exchange rate due to the demand for dollar purchases.

Experts expected the exchange rate to show a slow decline this year. Woori Bank expected the won-dollar exchange rate to fall to 1,410 won in the second quarter and 1,390 won in the third quarter, then rebound to 1,430 won in the fourth quarter. Citi predicted that if the impeachment ruling comes out at the end of this month to early April, the exchange rate would remain in the 1,450 won range for about three months afterward. They expected 1,435 won in 6 to 12 months. NH Investment & Securities expected a gradual decline from 1,430 won in the first quarter to 1,360 won in the fourth quarter.

Reporter Kang Jin-kyu josep@hankyung.com