Won Holds Early 1,300s Per Dollar on Chip Export Boom

On the morning of Oct. 13, the won/dollar exchange rate is displayed on an electronic board in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. (Yonhap) Despite continuous foreign selling in the domestic stock market recently, the won-dollar exchange rate has not risen significantly and appears to be settling in the low 1300 won range, driven by a record current account surplus from strong semiconductor exports. While forecasts from the financial sector suggest the won-dollar exchange rate could fall into the 1200 won range within the year, there are also observations that it could return to the 1400 won range due to the impact of U.S. interest rates. In the Seoul foreign exchange market on Oct. 13, the weekly closing price (as of 3:30 p.m.) of the won against the U.S. dollar was recorded at 1345.1 won, up 10.0 won from the previous trading day. It is analyzed that dollar demand increased as foreigners net sold 4.5 trillion won (approximately $3.46 billion) worth of the KOSPI on this day alone. Looking at the long-term time series over the past three months, the exchange rate trend is different. The won-dollar exchange rate showed a strong downward trend, falling by 210 won over three months after hitting 1555.8 won based on the weekly closing price on July 2. In fact, although foreigners net sold over 34 trillion won in the KOSPI from September to this day, looking at the high and low points of the won-dollar exchange rate during that period, it came down from the high 1380 won range to the low 1330 won range. The value of the US dollar did not fall during this period either. The ‘Dollar Index,’ which shows the value of the dollar against six major currencies, rather rose from 99 points to a recent 102 points. This is explained by the large-scale current account surplus brought about by the semiconductor boom and the expectation of a stronger won. Hur Jun-young, an economics professor at Sogang University, said, “Because the exports of our companies are doing record-breakingly well, expectations for a rise in the won-dollar exchange rate have softened,” and added, “Expectations (that the exchange rate will fall) also make the exchange rate (actually fall).” Min Kyung-won, a researcher at Woori Bank, analyzed, “Due to the strong semiconductor exports, dollars are coming into the market regardless of the timing (not just at the end of the month), which is a structurally favorable factor for the won,” and added, “Even if semiconductor stock prices undergo an adjustment, the dollar supply based on real exports continues separately from this.” Foreigners are also said to be holding a significant amount of the funds they sold in the domestic stock market in won rather than immediately exchanging them for dollars. This is because the won is stronger than the dollar. Accordingly, the foreign exchange authorities and the market are also forecasting a further decline in the exchange rate. Shin Hyun-song, Governor of the Bank of Korea, stated during the parliamentary audit on the previous day, “The exchange rate has stabilized considerably by raising the base interest rate twice (in July and August) this summer,” evaluating that, “The current exchange rate is still higher than the familiar exchange rates of the past. There is room for further decline in the future.” Some in the market even expect it to drop to the 1200 won range within the year. Lee Min-hyuk, a researcher at KB Kookmin Bank, stated, “If the semiconductor economy does not downturn, it is an environment that can sufficiently go below 1300 won within this year,” adding, “I see the lower bound of the exchange rate at around 1280 to 1290 won.” However, there are also forecasts that the exchange rate will rise again to around 1400 won at the end of the year due to the aftermath of high US interest rates. Jung Yong-taek, a researcher at IBK Securities, stated, “There is a high possibility that U.S. market interest rates will continue to flow around 5%,” and added, “If the global reserve currency is strong, it is difficult for the won to continue moving in a different direction (a strong won).”