Won-Dollar Exchange Rate Calms Thanks to 'Dollar Weakness'

Rollercoaster Ride in the Foreign Exchange Market

Dollar Value Falls Amid Concerns of 'US Self-Inflicted Wounds'

Volatility Likely to Increase Ahead of Individual Negotiations

The won-dollar exchange rate experienced a rollercoaster ride all day on the 3rd due to the announcement of reciprocal tariffs by the Donald Trump administration, ending with a slight increase at the end of the session. Concerns that the US economy could be hit led to a decrease in the value of the dollar. The won-yen exchange rate rose to its highest level in two years due to yen strength.

On this day, the won-dollar exchange rate in the Seoul foreign exchange market (as of 3:30 PM) closed at 1,467 won, up 40 jeon. The rate initially surged to 1,472 won 50 jeon right after opening but changed direction due to the impact of dollar weakness, dropping to 1,464 won 30 jeon shortly after lunchtime. It turned upward again in the late session.

The initial rise in the exchange rate was analyzed as reflecting risk aversion following the announcement of reciprocal tariffs by the US. The subsequent decline was influenced by the dollar's weakness due to concerns that tariff policies could significantly slow US economic growth. The Dollar Index (DXY), which shows the value of the dollar against six major currencies, was weak throughout the day. Baek Seok-hyun, an economist at Shinhan Bank, explained, "Reciprocal tariffs are a negative factor for the global economy but also for the US economy," adding, "The market also reflected the observation that there is still room for negotiation."

As uncertainty expanded, demand for safe assets surged, leading to yen strength. On this day, the yen-dollar exchange rate was recorded at 147.02 yen, down 2.25 yen as of 3:30 PM. At the same time, the won-yen exchange rate surged 18 won 56 jeon to 996 won 33 jeon per 100 yen. This is the highest level since April 27, 2023 (1,000 won 71 jeon).

The won-dollar exchange rate is expected to be significantly influenced by follow-up measures related to the US government's tariff policies. Lee Seung-hoon, a researcher at Meritz Securities, stated, "The content of the US government's reciprocal tariff announcement is the 'worst-case scenario,' yet the market did not react strongly," adding, "The announcement was not taken at face value." The Constitutional Court's ruling on the impeachment trial of President Yoon Seok-youl on the 4th is also mentioned as a major variable affecting the exchange rate.

Reporter Left Dong-wook leftking@hankyung.com