The won-dollar exchange rate has experienced significant fluctuations, rising nearly 70 won in just over a week to surpass the 1500 mark. This volatility is attributed to ongoing foreign capital outflows, compounded by geopolitical risks in the Middle East and strong dollar pressures.
According to the Seoul foreign exchange market on May 17, the won closed at 1500.8 won per dollar on May 15, up 9.8 won from the previous trading day.
On that day, the exchange rate opened at 1494.2 won, rising to the low 1500s by mid-afternoon. This marks the first time the rate has exceeded 1500 since April 7.
Recent fluctuations in the exchange rate have been pronounced. The rate dropped to 1439.6 won on May 6, only to soar to 1507.7 won on May 15, creating a nearly 70 won gap between the low and high points within a week.
Foreign capital outflows are a key factor driving the exchange rate increase. Foreign investors have consistently sold off domestic stocks over the past week, with net sales reaching 31 trillion won over seven consecutive trading days. Moon Da-woon, a researcher at Korea Investment & Securities, noted that foreign investors have been in a selling phase since the fourth quarter of last year, and the recent surge in domestic stock returns has led to additional selling pressure due to profit-taking and rebalancing.
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol expressed concern, stating, "The excessive volatility in our economy is being driven by foreign investors selling stocks and speculative trading outside the country."
Investor sentiment across the domestic financial market remains subdued. Uncertainties surrounding labor negotiations at Samsung Electronics and concerns over fiscal expansion have led to a sharp rise in bond yields. On May 15, the yield on three-year government bonds closed at 3.766%, up 11.2 basis points from the previous day. This marks the first time the three-year yield has reached the 3.7% range since November 16, 2023.
Internationally, political instability in the UK has weakened the pound, further strengthening the dollar and increasing downward pressure on the won. The potential challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham, following his securing of parliamentary candidacy, has raised concerns over fiscal sustainability due to increased spending. As a result, the pound fell to its lowest level in over a month as of May 15.
Geopolitical risks from the Middle East are also contributing to upward pressure on the exchange rate. Stalled peace negotiations between the U.S. and Iran, along with inconclusive results from the U.S.-China summit, have led to ongoing uncertainties regarding potential conflicts. Analysts warn that if high oil prices persist, risk appetite may diminish, potentially solidifying the won-dollar exchange rate in the 1500 range.
However, some analysts suggest that further upward movement may be limited. Moon noted, "The current range between 1500 and the post-war peak of 1536 is a zone where government intervention is likely, and the burden of levels is quite high. This week, with domestic and external pressures on the exchange rate overlapping temporarily, we expect more short-term increases rather than a sustained rebound."
* This article has been translated by AI.
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