The Korean won climbed to its strongest level against the dollar in two years, driven by robust exports and a glut of dollar selling. Foreign investors have continued to dump Korean stocks, but dollar sales by exporters and foreign selling of currency futures pushed the won higher. Analysts said the diverging paths of the stock and currency markets reflect reduced currency hedging as local share prices fall, combined with expectations that the won will strengthen on the back of a current account surplus.
The won strengthened to 1,333.20 per dollar in early trading on the 12th in the Seoul foreign exchange market. On an intraday-low basis, that was the strongest level since Oct. 4, 2024, when the currency reached 1,331.30. Bargain hunting later pared the gains, and the won closed afternoon trading at 1,335.1 per dollar, down 7.7 won from the previous session, as of 3:30 p.m.
Supply and demand conditions, with dollar selling dominating, drove the move. Selling orders outweighed buying, but bids were thin, so even small volumes pushed the won higher quickly, according to market participants. Trading was also quiet because U.S. and Japanese financial markets were closed, amplifying volatility driven by order flows.
Strong exports also supported the won. Exports totaled $26.1 billion in the first 10 days of this month, up 102.0% from a year earlier, according to the Korea Customs Service. That was the largest figure ever for the period, and average daily exports also hit a record high at $4.75 billion. Exporters have steadily converted their dollar proceeds into won, and those sales helped drive the currency higher.
The won's gain despite net selling of Korean stocks by foreign investors is notable. Foreign investors extended their net selling on the main board to a fifth consecutive session through the day. Typically, when foreign investors sell Korean stocks, they create demand to convert the proceeds into dollars after disposing of won-denominated assets, which can weaken the won. Recently, however, dollar selling by exporters and foreign selling of currency futures have offset that pressure, analysts said.
One foreign exchange market participant said of the increase in foreign selling of currency futures: "We cannot know for certain, but most views attribute it to reduced currency hedging as local share prices fall and to forecasts that the won will strengthen on the back of a current account surplus." That suggests investors may have been trimming existing hedge positions in response to falling share prices, or selling currency futures because they expect the won to strengthen based on the current account surplus.
Market watchers said short-term order flows in a thin order book are dictating the currency's moves. "There was no unusually large volume of exporter conversions, but bids were weak, so the won moved quickly," a currency dealer at a commercial bank said. "Macroeconomic variables and currency moves increasingly diverge, and because the market is thin, the won reacts sensitively even to small volumes."
