The exchange rate of the Korean won against the dollar has fallen to its lowest level in over two years, driven by strong semiconductor exports and an increase in dollar supply due to a trade surplus. The won's strength has also led to the lowest won-yen exchange rate in nearly 19 years. However, uncertainties surrounding the Middle East situation, international oil prices, and global financial markets are expected to contribute to continued volatility in exchange rates.
According to the Bank of Korea's economic statistics system, the average won-dollar exchange rate from the beginning of this month until the 16th was recorded at 1,342.6 won, the lowest level since September 2024, when it averaged 1,332.8 won.
The won-dollar exchange rate surged to an average of 1,492.5 won in March due to the impact of the Middle East conflict, and it reached 1,528.0 won in June amid rising international oil prices and foreign stock sell-offs. Since then, the rate has declined as semiconductor exports have increased and export companies have sold more dollars. The monthly average exchange rates were 1,488.9 won in July, 1,404.4 won in August, and 1,358.8 won in September.
On the 16th, the exchange rate briefly dropped to 1,328.9 won, marking the lowest point of the year and the lowest since October 2, 2024.
The primary reason for the decline in the exchange rate is the increased dollar supply resulting from strong exports. As exports, particularly in semiconductors, have risen and the trade surplus continues, the domestic foreign exchange market has seen an accumulation of dollar sales. The process of export companies converting earned dollars into won has increased the dollar supply. The improvement in the current account due to rising exports has also supported the appreciation of the won.
Expectations regarding economic growth and monetary policy are also believed to influence the value of the won. The Organization for Economic Cooperation and Development (OECD) has projected South Korea's growth rate at 3.7%, indicating a relatively favorable growth outlook, while the possibility of further interest rate hikes by the Bank of Korea is also a key variable in the foreign exchange market.
The won-yen exchange rate is also on a downward trend. The average won-yen exchange rate this month is 849.0 won per 100 yen, the lowest since December 2007, when it was 829.2 won. On the 12th, the rate fell to 839.91 won, the lowest since January 2008. The rapid decline in the won-dollar exchange rate has occurred despite the yen's relative stability against the dollar.
The strengthening of the won may help reduce import price burdens and lower costs for companies importing energy and raw materials. However, it could also pose challenges for export companies regarding price competitiveness and won-denominated profits. Particularly, if the pace of the exchange rate decline is rapid, it may impact the profitability of export firms.
* This article has been translated by AI.
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