Unstable Middle East, exchange rate surges by 18.7 KRW... Authorities: "Stabilization measures if necessary" [Korea Economic Daily Forex Market Watch]

As instability in the Middle East intensified, the exchange rate surged by nearly 20 KRW. This marks the largest increase in about 80 days since early April, when exchange rates fluctuated due to President Donald Trump's imposition of reciprocal tariffs and the aftermath of the impeachment of former President Yoon Seok-yeol.

On the 23rd at the Seoul foreign exchange market, the KRW/USD rate (as of 3:30 p.m.) finished weekly trading at 1,384.30 KRW, up 18.70 KRW from the previous trading day. This is the highest level since recording 1,387.20 KRW on the 21st of last month. The rate started the day at 1,375.00 KRW, up 9.40 KRW, and surged sharply from early trading. Around 10:30 a.m., it jumped to as high as 1,385.20 KRW.

The increase on this day (18.70 KRW) is the largest in about 80 days since the 33.70 KRW surge on April 7. The main cause appears to be the escalation of geopolitical risks in the Middle East over the past weekend.

On the 21st (local time), the United States launched a surprise airstrike on three key nuclear facilities in Iran, directly intervening in the conflict between Israel and Iran. Initially, President Trump had stated on the 19th, "We will decide within the next 2 weeks whether to attack Iran," setting a negotiation deadline; however, an airstrike was carried out just two days later. In retaliation, Iran's parliament decided to blockade the Strait of Hormuz, the primary shipping route for oil and gas, resulting in a sharp increase in international oil prices.

A rise in oil prices can increase inflationary pressure and may eventually support a strong dollar by delaying the timing of a rate cut by the Federal Reserve (Fed). Risk aversion due to increased short-term uncertainty and a preference for safe-haven assets are also cited as reasons for the dollar's strength. The dollar index, which measures the value of the dollar against the currencies of six major countries, rose as high as 99.212 during the session. As of 3:30 p.m., it stood at 99.003, up 0.26% from the previous trading day.

Lee Min-hyuk, a researcher at KB Kookmin Bank, said, "Amid growing concerns about the expansion of the Middle East conflict due to the U.S. attack on Iran, the dollar's strength driven by a preference for safe assets is fueling the rise in exchange rates," adding, "The exchange rate will fluctuate while monitoring Iran's response to the U.S. attack and trends in international oil prices." However, some believe that the firm response from the United States may lead to an early end to the situation, thereby resolving uncertainty.

Foreign exchange authorities convened a market situation review meeting in the morning and issued a series of verbal intervention statements. Lee Hyung-il, First Vice Minister acting as Minister of Strategy and Finance, said, "We will closely monitor market trends, and if excessive volatility occurs, we will immediately take necessary action in cooperation with relevant agencies." Yoo Sang-dae, Deputy Governor of the Bank of Korea, said, "If excessive volatility expands in the financial and foreign exchange markets, we will implement necessary market stabilization measures in a timely manner."

As of 3:30 p.m. on this day, the KRW/JPY cross rate stood at 939.43 KRW per 100 JPY, up 0.13 KRW compared to the previous day's closing rate at 3:30 p.m. of 939.30 KRW. The JPY/USD rate stands at 147.39 JPY per USD, up 1.29 JPY.

Reporter Kang Jin-kyu josep@hankyung.com