The USD-KRW exchange rate fell to 1,460 won recently, down from near 1,600 won in June, according to Kiwoom Securities economist Kim Yu-mi on the 27th. The decline stems from improved domestic fundamentals and forex market supply-demand conditions rather than dollar weakness. Fundamental improvements include strong semiconductor exports driving Korea GDP forecast upgrades and the Bank of Korea's rate hike narrowing the US-Korea interest rate gap, while supply-side factors include anticipated SK Hynix ADR conversion demand and heavy industry forward FX selling. Kim noted these factors have spread perceptions that the exchange rate has formed a short-term peak, weakening upward rate expectations and gradually expanding exporters' won conversion demand.
Fundamentals and Supply-Demand Drive USD-KRW Decline
Kim Yu-mi stated in a report on the 27th that the won's strength reflects improved domestic fundamentals and forex market supply-demand conditions. On the fundamental side, strong semiconductor export performance has led to upward revisions in Korea's economic growth forecasts, while the Bank of Korea's rate hike has narrowed the US-Korea interest rate gap. Supply-demand factors include anticipated SK Hynix ADR-related conversion demand and heavy industry forward FX selling. Kim assessed that these factors are spreading perceptions that the exchange rate has formed a short-term peak, weakening upward rate expectations and gradually expanding exporters' won conversion demand.
Short-Term Forecast Points to Early 1,400 Won Level
Kim Yu-mi projected that the exchange rate decline will continue in the short term. She stated that if upward rate expectations weaken, corporate won conversion demand may persist, and if Middle East geopolitical risks ease and US inflation deceleration continues, Federal Reserve tightening concerns may further subside. Kim added that the USD-KRW exchange rate has the possibility of falling to the early 1,400 won level in the short term.
Structural Won Strength Constrained by Fed Policy and Overseas Investment
Kim Yu-mi emphasized it is still early to expect structural won strength. She cited the Federal Reserve's likely continuation of its tightening stance, noting that while tightening concerns may ease, the directional policy itself will not change. The possibility of renewed investment sentiment toward US artificial intelligence companies was also identified as a factor constraining won strength. Kim stated that structural dollar demand arising from Korean investors' ongoing overseas investment will act as a factor limiting further USD-KRW declines. She noted that for additional declines, growth momentum must spread beyond the semiconductor-centered structure to the broader industrial sector, and domestic asset expected returns must maintain superiority over overseas assets.
Regarding recent yen weakness, Kim cited fiscal soundness concerns, the maintained US-Japan interest rate gap, economic growth forecast downgrades, and overseas investment expansion as causes. She anticipated that short-term yen weakness mitigation would require US inflation deceleration and easing of Federal Reserve tightening concerns. Kim assessed that structural yen strength is difficult to expect, as the Bank of Japan cannot easily pursue aggressive tightening given domestic demand instability.
FAQ
What caused the USD-KRW exchange rate to fall to 1,460 won?
According to Kiwoom Securities economist Kim Yu-mi on the 27th, the decline to 1,460 won from near 1,600 won in June resulted from improved domestic fundamentals and forex market supply-demand conditions. Fundamental factors include strong semiconductor exports driving Korea GDP forecast upgrades and the Bank of Korea's rate hike narrowing the US-Korea interest rate gap. Supply-demand factors include anticipated SK Hynix ADR conversion demand and heavy industry forward FX selling.
How low could the USD-KRW exchange rate fall in the short term?
Kim Yu-mi stated the USD-KRW exchange rate has the possibility of falling to the early 1,400 won level in the short term. She projected the decline will continue if upward rate expectations weaken, Middle East geopolitical risks ease, and US inflation deceleration persists.
Why is structural won strength still considered premature?
Kim Yu-mi emphasized it is early to expect structural won strength because the Federal Reserve will likely maintain its tightening stance. Structural dollar demand from Korean investors' ongoing overseas investment will limit further USD-KRW declines. Additional declines require growth momentum to spread beyond semiconductors to the broader industrial sector and domestic asset expected returns to maintain superiority over overseas assets.
