Despite ongoing pressures from a strong U.S. dollar due to uncertainties surrounding the Federal Reserve's monetary policy, the Korean won is showing relative strength. Recently, the won-dollar exchange rate dipped to the 1,330 won range before slightly rebounding to the 1,340 won level. Analysts suggest there is potential for further declines by year-end, supported by robust semiconductor exports and expectations of domestic economic recovery.
As of 3:30 PM on November 2, the won-dollar exchange rate was trading at 1,343.8 won, up 9.5 won from the previous week's closing price. The exchange rate had soared to over 1,550 won in June but has since declined, reaching a record low in the low 1,320 won range last month.
Notably, the won has maintained a relatively stable position in the foreign exchange market despite global pressures on the dollar. Factors such as uncertainties in U.S. monetary policy and geopolitical risks have supported the dollar's value, yet the won has shown resilience, contributing to downward pressure on the exchange rate.
One key factor supporting the won's strength is the strong performance of semiconductor exports. Improved earnings and increased exports from semiconductor companies have positively influenced the inflow of foreign currency, which could lead to greater dollar selling demand from exporters, thereby increasing dollar supply in the foreign exchange market and contributing to a lower exchange rate.
Expectations for domestic economic recovery also bolster the won's strength. The Bank of Korea reported on October 27 that the real GDP for the third quarter of this year grew by 1.0% compared to the previous quarter, exceeding its earlier forecast of 0.3% by 0.7 percentage points. Strong semiconductor exports and capital investment are driving this growth, raising the likelihood of an upward revision in the economic growth forecast for the year.
Additionally, the possibility of further interest rate hikes by the Bank of Korea is seen as another factor contributing to downward pressure on the exchange rate. Given the higher-than-expected growth rate and inflationary pressures, market analysts predict a strong likelihood of an additional rate hike this month. An increase in domestic interest rates could enhance the relative investment appeal of won-denominated assets, further supporting the won's strength.
Bank of Korea Governor Shin Hyun-song recently noted that the won remains undervalued based on effective exchange rates. This suggests that there is potential for further appreciation of the won in the medium to long term.
Experts are forecasting a downward trend in the exchange rate. Korea Investment & Securities has revised its average fourth-quarter won-dollar exchange rate forecast from 1,350 won to 1,320 won, reflecting the won's stronger-than-expected performance despite the dollar's strength. The anticipated range for the exchange rate by year-end has also been lowered to between 1,250 and 1,390 won.
However, there remains a possibility of a temporary rebound during the decline in the exchange rate. Factors such as the U.S. midterm elections, uncertainties surrounding the Federal Reserve's monetary policy, and geopolitical risks could stimulate demand for the dollar as a safe-haven asset, potentially leading to a short-term increase in the exchange rate. Additionally, the recent sharp decline in the exchange rate may create upward pressure on levels, limiting further declines.
Moon Da-un, a researcher at Korea Investment & Securities, stated, "If the pressure from a strong dollar gradually eases, the lower bound of the exchange rate may open up further. However, considering the recent rapid decline and the remaining time until year-end, we expect that the exchange rate will face increased rigidity around the 1,270 to 1,280 won range during any further downward trajectory."
* This article has been translated by AI.
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