The Korean won-dollar exchange rate has risen to the 1500 won range despite record export performance and upward revisions to economic growth forecasts. The exchange rate averaged 1544.50 won during the first days of the month, continuing an upward trend from monthly averages of 1456.58 won in January, 1449.24 won in February, 1491.16 won in March, 1485.32 won in April, 1491.12 won in May, and 1529.43 won in June. The won's depreciation stems from supply-demand imbalances in the foreign exchange market, driven by sustained foreign investor selling of Korean equities and corporate preference to retain dollar holdings rather than convert export earnings to won. This occurs against a backdrop of South Korea's current account surplus reaching record highs, with annual exports potentially achieving $1 trillion for the first time, and economic growth forecasts raised to the 3-4% range.
Won Depreciates 8% in First Half Despite Record Current Account Surplus
The won depreciated approximately 8% during the first half while the dollar index rose 3% against major currencies. Among G20 currencies, the won recorded the second-largest depreciation after the Turkish lira during this period. South Korea's current account surplus has reached record levels each month, with annual exports on track to potentially surpass $1 trillion for the first time. Economic growth forecasts have been raised to the 3-4% range.
Foreign Investors Sell 143 Trillion Won in Korean Stocks During First Half
Foreign investors net sold approximately 143 trillion won worth of Korean stocks in the first half. In the first four trading days of the month, foreign selling reached nearly 10 trillion won. The outflow through the financial account has intensified as domestic investors increase overseas investments while foreign investors reduce Korean equity positions for portfolio rebalancing purposes amid rising stock indices. Corporations have increased their preference to retain dollar earnings overseas or in foreign currency deposits rather than converting them to won. A commercial bank official stated that companies with large export revenues are uncertain about how to manage the funds and view holding dollars as a better investment option during periods of exchange rate appreciation.
Analysts Forecast Exchange Rate Could Reach 1600 Won in Q3
SK Hynix's American Depositary Receipt (ADR) listing on Nasdaq is expected to supply up to $30 billion to the domestic market for local investment. Goldman Sachs estimated in a report that major semiconductor companies may need to convert up to $40 billion in cash to won by mid-August for corporate tax interim payments. The firm provided exchange rate forecasts of 1460 won for 3 months, 1440 won for 6 months, and 1420 won for 12 months. Wi Jae-hyun, a researcher at Kyobo Securities, stated that if overseas passive fund rebalancing sales continue in the second half, there are no visible factors to cap the exchange rate ceiling, and it is necessary to consider an upper range of 1600 won within Q3. Oh Jae-young, a researcher at KB Securities, noted that the exchange rate could rise further in the second half due to dollar strength and foreign securities selling, with an upper range of 1580 won.
FAQ
Why is the Korean won weakening despite strong export performance?
The won's depreciation is driven by supply-demand imbalances in the foreign exchange market. Foreign investors sold approximately 143 trillion won in Korean stocks during the first half, while corporations prefer retaining dollar earnings overseas or in foreign currency deposits rather than converting them to won, reducing actual dollar supply in the market.
What are analysts' exchange rate forecasts for the coming months?
Goldman Sachs forecasts the exchange rate at 1460 won in 3 months, 1440 won in 6 months, and 1420 won in 12 months. However, some analysts suggest the rate could reach 1600 won in Q3 if foreign selling continues, while others set an upper range of 1580 won for the second half.
