Won/Dollar exchange rate hits lowest in 1 year and 11 months... "Further decline to the 1320th won range possible"

The won/dollar exchange rate fell to the 1330th won range during trading due to increased dollar sales by export companies. Market analysts suggest that with continued dollar supply dominance, the exchange rate could drop further to around 1320 won.

On the 7th, the won/dollar exchange rate closed weekly trading at 1,340.5 won, down 9.9 won from the previous day. Based on closing prices, this marks the lowest level in 1 year and 11 months since October 4, 2024 (1,333.7 won).

The exchange rate opened at 1,347.8 won and briefly dipped to 1,334.7 won during morning trading. Entering the 1330th won range for the first time since October 4, 2024. Compared to the recent high of July 1 (1,559.2 won), it has fallen by as much as 224.5 won over approximately two months.

Although strong U.S. employment data has heightened expectations for interest rate hikes by the Federal Reserve (Fed), domestic supply-demand conditions favoring dollar supply have pulled down the exchange rate. The dollar index, which reflects the value of the dollar against six major currencies, rose to 99.09 as of 3:37 p.m., up from the previous trading day.

Despite this, the won strengthened due to continued dollar sales by export companies such as semiconductor firms, supported by a massive current account surplus. Additionally, rising expectations for interest rate hikes by the Bank of Japan (BOJ) and concerns over foreign exchange market interventions have contributed to a stronger yen, further supporting the won's strength.

However, news that the National Pension Service temporarily halted currency hedging caused the won/dollar exchange rate to rebound into the 1340th won range. The National Pension Service is reported to have resumed currency hedging through forward contracts in June when the exchange rate surged sharply to the 1500th won range. Markets interpret this move as a normalization of measures previously taken to prevent excessive depreciation of the won amid accelerating declines in the exchange rate.

Factors limiting further declines in the exchange rate include the National Pension Service's suspension of currency hedging, low-price purchases by import companies, overseas stock investments by residents, and foreign remittance demand triggered by Samsung Electronics' special dividend.

However, analysts note that dollar supply driven by current account surpluses continues to significantly exceed capital outflow demands such as overseas investment, leaving the possibility of further exchange rate declines open. In July, the current account surplus reached $42.08 billion, the second-highest on record, while net increases in direct investment and securities investment were only $4.13 billion and $5.4 billion, respectively.

Lee Jeong-hoon, an economist at Daishin Securities, stated, "Considering that past short-term declines in the won/dollar exchange rate typically ended around the 15th% mark, a further drop to approximately 1320 won is possible." He added, "Unless unexpected external shocks intensify capital outflow pressures, there is a high likelihood that upward pressure on the exchange rate will remain limited."