The Korean won depreciated against all ten G10 currencies over the past year from July 7, 2023 to July 6, 2024, according to Yonhap Infomax cross exchange rate data released on July 7, 2024. The won weakened faster than the Japanese yen, which fell to its lowest level in 40 years. The depreciation was driven by foreign investors selling Korean stocks for profit-taking after the KOSPI index surged, and expectations of potential interest rate hikes by the U.S. Federal Reserve. Korea's real effective exchange rate stood at 84.75 as of end-May 2024, the second-lowest among 64 countries surveyed by the Bank for International Settlements, with only Japan recording a lower rate at 65.93.
Korean Won Depreciated 19.9% Against Australian Dollar Over One Year
According to Yonhap Infomax cross exchange rate data (screen number 6426), the Korean won depreciated against all G10 base currencies during the one-year period. The AUD-KRW exchange rate rose 19.9%, recording the largest increase. The NOK-KRW rate increased 15.9%, USD-KRW rose 11.9%, CHF-KRW climbed 11.0%, SEK-KRW gained 10.9%, and GBP-KRW advanced 10.3%, all posting double-digit percentage gains. The EUR-KRW rate rose 9.3%, CAD-KRW increased 7.9%, and NZD-KRW climbed 6.5%. The JPY-KRW exchange rate showed the smallest increase at 0.8%.
G10 currencies refer to the ten major currencies actively traded in global foreign exchange markets. The Chinese yuan is not included in G10 currencies. Among G10 currencies, the U.S. dollar is the only currency directly traded against the Korean won. Exchange rates between other currencies and the won are calculated as cross rates through the dollar.
Korea Records Second-Lowest Real Effective Exchange Rate Among 64 Countries
According to the Bank for International Settlements, as of end-May 2024, only Japan (65.93) had a lower real effective exchange rate than Korea (84.75) among 64 surveyed countries. The real effective exchange rate shows the real value of a country's currency after accounting for price differences with trading partners. A real effective exchange rate below 100 indicates currency undervaluation compared to the base year of 2020.
Expert Identifies Three Structural Breaks in USD-KRW Exchange Rate Since 2015
Park Hae-sik, senior research fellow at the Korea Institute of Finance, stated that structural breaks involving upward shifts in the average level of the USD-KRW exchange rate occurred at least three times since 2015, identifying those points as April 2019, April 2022, and March 2024. He noted that shifts in the average exchange rate level are related to global dollar strength and expansion of domestic investors' overseas securities investments. Park analyzed that "unless additional shocks occur, the average level of the USD-KRW exchange rate is likely to remain near current levels rather than returning to past levels in the short term."
FAQ
What happened to the Korean won against G10 currencies over the past year?
The Korean won depreciated against all ten G10 currencies during the one-year period from July 7, 2023 to July 6, 2024, according to Yonhap Infomax data released on July 7, 2024. The AUD-KRW exchange rate rose 19.9%, the highest increase, while the JPY-KRW rate showed the smallest gain at 0.8%.
Why did the Korean won weaken in 2024?
The won depreciation was driven by foreign investors selling Korean stocks for profit-taking after the KOSPI index surged, and expectations of potential interest rate hikes by the U.S. Federal Reserve, according to the source article.
How does Korea's real effective exchange rate compare internationally?
As of end-May 2024, Korea's real effective exchange rate stood at 84.75, the second-lowest among 64 countries surveyed by the Bank for International Settlements. Only Japan recorded a lower rate at 65.93.
