The Korean won is rising more than any other major currency, an unusual move given high oil prices and a strong dollar. Analysts say a record current account surplus, driven by robust semiconductor exports, is offsetting downward pressure on the won from dollar strength and capital outflows.
The won closed at 1,330.3 against the dollar in Seoul on the 19th, down 1.1 won from the previous session, based on the 3:30 p.m. benchmark rate. That was the lowest level in two years, since October 2, 2024, when the rate stood at 1,319.3 won. The rate has fallen about 14.4% from the 1,550 won range in early July to 1,331.4 won on the 16th of this month. Over the same period, the dollar index, which tracks the greenback against six major currencies, rose to 101.84 from 101.39. The won gained even as the dollar strengthened globally.
The won's advance stands out against other major currencies. Over the same period, the Japanese yen rose just 2.8% against the dollar, while gains in the Chinese yuan (1.6%) and the Singapore dollar (0.9%) fell well short of the won's. The euro and the Swiss franc weakened 1.8% and 2.4% against the dollar, respectively.
The won's cross rate against the yen fell more steeply. The rate per 100 yen dropped to 839.76 won during the session, the lowest since January 2008. The won also strengthened against the yuan, with the rate falling to 198.78 won intraday, the lowest since October 2 last year, when it stood at 196.44 won.
Market participants point to a widening current account surplus as the main driver. According to the Bank of Korea, the surplus reached $279.2 billion in the first eight months of this year, roughly four times the $69.7 billion recorded a year earlier. Surging exports on stronger demand for memory chips brought in more dollars, expanding the foreign currency supply enough to offset dollar demand from retail investors buying overseas securities.
Global investors are also watching Korea's improving external balance. Zhinan Li, an analyst at Asia Macro Pulse, a global macroeconomic platform, said the surge in Korea's September trade surplus more than offset the negative impact of dollar strength, adding that the won could keep strengthening in the coming months as the trade surplus is expected to hold up.
The surplus has emerged as a buffer against won weakness only recently. Through the end of June, the won weakened to around 1,550 per dollar even as the dollar index declined, a move hard to explain by dollar flows alone.
At the time, weak investor sentiment and capital outflows kept the surplus from lifting the won. More recently, rising chip prices have widened the surplus enough to expand the foreign currency supply and offset capital outflow pressure, analysts said. Some read the shift as a sign that the key driver of the exchange rate is moving from dollar flows and investor sentiment to the current account.
The Bank of Korea also said the exchange rate remains high given the wider surplus. A senior central bank official said the rate is indeed still somewhat high considering the sharp increase in the current account surplus.
Stock selling by foreign investors, however, is seen as a factor that could reverse the won's gains. One foreign exchange market expert said that if foreign investors reduce currency hedges in response to falling share prices, the resulting dollar selling could push the rate lower, but that selling the stocks themselves to repatriate funds would increase dollar demand and add upward pressure on the rate.