Despite a strong dollar, the won has strengthened, dropping to the 1,330 won range against the dollar, supported by a record current account surplus. The influx of dollars from export companies benefiting from a semiconductor boom is increasing downward pressure on the exchange rate. Market analysts suggest that this trend may continue, leading to further declines in the won-dollar exchange rate.
On October 8, in the Seoul foreign exchange market, the won was trading at 1,338.5 won per dollar as of 3:30 PM, down 1.9 won from the previous trading day.
The strong won is largely attributed to a historically high current account surplus. According to the Bank of Korea, the current account recorded a surplus of $46.11 billion in August, marking the second-largest surplus on record, following June's $49.73 billion. The cumulative surplus from January to August this year reached $279.2 billion, nearly four times that of the same period last year.
The expansion of the current account surplus has been driven by semiconductor exports. In August, the goods trade surplus was $46.81 billion, the second-highest ever recorded. Total goods exports reached $104.8 billion, an 82.1% increase compared to the same month last year. Notably, semiconductor exports surged by 206.1%, significantly contributing to the overall export growth.
A large export surplus acts as a factor for the won's strength in the foreign exchange market. When export companies convert the dollars earned abroad into won, the increased dollar supply in the foreign exchange market puts downward pressure on the won-dollar exchange rate.
Korea Investment & Securities recently projected that the trend of a strengthening won could continue as the exchange rate has fallen to the 1,330 won range. Analyst Moon Da-un stated, "There are now more factors pushing the exchange rate down compared to when it was at the 1,330 won level in the past."
This increase in dollar supply is reflected in the actual exchange rate trends. Over the past month, the dollar index (DXY), which measures the dollar's value against six major currencies, rose by 3.48%, yet the won-dollar exchange rate fell by 7.1 won (0.53%).
Particularly, on September 18, amid heightened concerns over U.S. tightening, the won-dollar exchange rate peaked at 1,390.2 won but has since dropped to 1,338.5 won, a decrease of 51.7 won (3.72%). This decline is interpreted as being supported by the dollar selling activities of export companies, despite the global strength of the dollar.
Moon noted, "As the trade balance and current account continue to show significant surpluses, major export companies are returning to dollar selling, leading to an influx of dollars into the domestic foreign exchange market. This is a factor that lowers the exchange rate."
However, not all of the current account surplus translates into a stronger won. An increase in overseas securities investments by domestic investors can raise demand for dollars, partially offsetting the downward pressure on the exchange rate from the export surplus.
In August, domestic investors' overseas securities investments increased by $16.6 billion, marking the second-largest increase on record. Investments in foreign stocks rose by $10.15 billion, while investments in foreign bonds increased by $6.44 billion, with the latter seeing the largest increase ever. The surge in global interest rates has heightened the attractiveness of foreign bonds, potentially leading to increased buying activity from domestic investors.
Park Seong-gon, head of the Bank of Korea's International Balance of Payments Team, explained, "Recently, investments in U.S. long-term government bonds have been ongoing, primarily among institutional and individual investors."
Korea Investment & Securities forecasts that the average won-dollar exchange rate for the fourth quarter will be 1,350 won, with a range of 1,280 to 1,420 won. They also project the average exchange rate for next year to be around 1,350 won. Future exchange rates will likely be influenced by the dollar selling trends of export companies and the dollar demand stemming from overseas investments.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.