As Exchange Rates Rise, Dollar and Yen Profit-Taking... Foreign Currency Deposits Hit Three-Month Low [Hankyung Foreign Exchange Market Watch]

It has been observed that foreign currency deposits, including the dollar and yen, have decreased across the board. This is due to the increased demand to sell relatively expensive foreign currencies as the value of the Korean won has significantly declined. There are expectations that this trend may strengthen as exchange rates continue to rise this month.

According to the 'Trends in Residents' Foreign Currency Deposits in February 2025' released by the Bank of Korea on the 31st, residents' foreign currency deposits at foreign exchange banks were recorded at $98.53 billion at the end of last month. This is a decrease of $4.91 billion compared to the end of January, falling below $100 billion. This is the lowest level in three months since the end of November last year ($98.43 billion).

The decrease in foreign currency deposits last month was influenced by the rise in exchange rates. Investors engaged in foreign exchange investments took profits, and companies were found to have converted their foreign currency holdings into Korean won.

The dollar decreased by $3.79 billion from $88.31 billion to $84.52 billion. The Bank of Korea explained, "As the won-dollar exchange rate rose, the incentive to convert to Korean won increased, leading to a decrease centered on corporate deposits." The exchange rate, which was 1,452.70 won per dollar at the end of January, rose to 1,463.40 won at the end of February.

It is understood that there was significant profit-taking by individual investors in yen. Yen deposits decreased by $530 million from $8.29 billion to $7.76 billion. The won-yen exchange rate rose from 939 won per 100 yen to 975.44 won during this period.

Euro deposits decreased from $4.45 billion to $4.16 billion, and Chinese yuan deposits decreased from $1.16 billion to $950 million. The won-euro exchange rate rose from 1,488.80 won per euro to 1,496.90 won, and the won-yuan exchange rate rose from 198.90 won to 200.57 won during this period.

This trend of deposit decrease is expected to continue after March. This is because the value of the Korean won continues to decline, causing exchange rates to rise. As of the 28th, the won-dollar exchange rate was 1,466.50 won, up 3.10 won from a month ago, and the won-euro and won-yuan exchange rates rose further to 1,583.78 won and 201.72 won, respectively. Only the won-yen exchange rate slightly decreased to 972.77 won compared to the previous month.

The exchange rate is expected to rise further due to concerns over mutual tariffs imposed by President Donald Trump and continued domestic political uncertainty. On this day, the won-dollar exchange rate in the Seoul foreign exchange market rose to 1,472.10 won per dollar in the morning before slightly falling to move around 1,470 won.

Reporter Kang Jin-kyu josep@hankyung.com