The won-dollar exchange rate has been experiencing significant fluctuations as negotiations for a ceasefire between the U.S. and Iran continue to stall and resume. Analysts predict that volatility will persist until a final agreement is reached.
On May 11, the exchange rate in the Seoul foreign exchange market closed at 1,472.4 won per dollar, up 0.7 won from the previous trading day. The rate opened at 1,466.0 won, down 5.7 won from the prior day, but surged to over 1,476 won at one point during the day.
Recently, the foreign exchange market has been reacting sharply to news related to U.S.-Iran negotiations. Until early last month, the exchange rate was threatening the 1,500 won mark, but it quickly declined as negotiations began. However, every time the possibility of a breakdown in talks and renewed geopolitical tensions arises, the rate has spiked again, indicating high volatility.
On May 6, the won-dollar exchange rate dipped below 1,440 won during the day due to significant foreign buying of domestic stocks and optimism surrounding U.S.-Iran ceasefire expectations. Conversely, on May 8, as geopolitical tensions escalated, the rate rebounded nearly 20 won in a single day, reflecting market anxiety.
The potential for an all-out war in the Middle East remains limited. The U.S. and Iran are maintaining negotiation channels, and with a U.S.-China summit scheduled for May 14, analysts believe the U.S. will seek to avoid escalating Middle East risks. A prolonged conflict could weaken U.S. negotiating power with China, as China may leverage the Iran issue in negotiations.
Additionally, the recent strengthening of the yen is seen as a factor that alleviates some downward pressure on the won. The yen has been gaining strength amid concerns over potential market interventions by the Japanese government and expectations of changes in monetary policy. Market observers note that the yen's strength is encouraging a broader appreciation of Asian currencies, positively impacting the won.
External supply conditions are also favorable for the won. According to the Bank of Korea, the current account surplus reached a record $37.33 billion in March, marking the largest surplus ever recorded for two consecutive months, following February's $23.19 billion. The expansion of the current account surplus increases domestic dollar supply, helping to buffer upward pressure on the exchange rate.
However, the market does not rule out the possibility that the exchange rate could threaten the 1,500 won mark again if Middle East risks escalate. Given the history of repeated negotiations and ceasefire discussions, high volatility is expected to continue until a final agreement is reached. Analysts also warn that a sharp rise in international oil prices could lead to increased import costs and heightened risk-averse sentiment, further exerting downward pressure on the won.
Park Sang-hyun, a researcher at iM Securities, stated, "It is essential to monitor the potential for further appreciation of the yuan and yen around the U.S.-China summit. The high oil prices and volatility stemming from the stalled ceasefire negotiations between the U.S. and Iran are the most significant variables in the global foreign exchange market, but if the situation does not change rapidly, the impact of the dollar may be limited."
* This article has been translated by AI.
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