Despite news of peace negotiations between the U.S. and Iran and a domestic current account surplus, the won-dollar exchange rate remains stubbornly above 1500 won, showing significant downward rigidity. Factors such as foreign capital outflows, increased overseas investments by domestic residents, and the potential for tighter monetary policy from the U.S. Federal Reserve are contributing to the prolonged high exchange rate.
On June 22, the exchange rate in the Seoul foreign exchange market closed at 1537.0 won per dollar, up 10.0 won from the previous trading day. This marks the first time in ten trading days that the rate has closed above 1530 won since June 8, when it was at 1535.00 won. The won-dollar exchange rate has remained in the 1500 won range for 25 consecutive trading days since May 15. Before the outbreak of the conflict in the Middle East, the rate was trading around 1450 won but surged to a peak of 1559.5 won on June 5.
As exchange rate volatility increases, authorities have swiftly intervened. They stated, "We will not tolerate excessive volatility and one-sided trends compared to our economic fundamentals," and pledged to respond strongly to stabilize the market. However, despite this intervention and progress in peace talks between the U.S. and Iran, the decline in the exchange rate has been limited. Analysts attribute this to a combination of domestic foreign exchange supply-demand imbalances and global tightening trends.
The primary factor driving the situation is the foreign investors' 'Sell Korea' trend. As of now, foreign investors have sold off over 117 trillion won in the domestic stock market this year, equivalent to approximately $78 billion. After selling stocks, these investors are converting their funds into dollars and exiting the domestic market, leading to a decrease in dollar supply and an increase in demand in the foreign exchange market.
Conversely, demand for overseas stock investments by domestic residents remains high. Despite the rising exchange rate, the trend of domestic investors, known as 'Seohakgaemi,' favoring U.S. stocks continues unabated. The net purchase of U.S. stocks reached $10.5 billion in 2024, $42.4 billion in 2025, and has already hit $10.1 billion as of June 19 this year. This trend is contributing to increased demand for dollars as domestic investors convert won to dollars to purchase U.S. stocks.
The global macroeconomic environment is also exacerbating the weakness of the won. The U.S. Federal Reserve has indicated the possibility of interest rate hikes within the year, maintaining a strong dollar sentiment. Even if peace is achieved, concerns remain that high oil prices could persist for an extended period. There are prevailing forecasts that the normalization of oil supply will be delayed during the post-war infrastructure recovery process, making it difficult for international oil prices to stabilize. Rising oil prices are putting pressure on import prices, further burdening the value of the won.
Experts identify foreign capital flows as a key variable in determining the future direction of the exchange rate. O Jae-young, a researcher at KB Securities, noted, "The long-term trend of the exchange rate in the second half of the year will depend significantly on how long foreign selling in the domestic stock market continues and how much additional selling volume is available. While weak demand for currency exchange from major exporting companies is a factor, if the outflow of foreign capital and overseas investment demand in Korea ease, it could indicate a potential downward shift in the exchange rate."
He added, "Even if the war ends, it will be challenging for international oil prices to quickly return to pre-war levels, and concerns about the Fed's tightening will remain, making it unlikely for the won-dollar exchange rate to drop directly to 1440 won. For the time being, we expect fluctuations between 1480 and 1540 won, with a potential decline to the mid-1400s in the second half of the year."
* This article has been translated by AI.
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