Two months, a drop of 220 won... Won/dollar exchange rate in the 1,330-won range, lowest in 23 months

The won/dollar exchange rate fell to the mid-1,330-won range amid a strengthening yen and increased dollar sales by export companies. Despite a sharp rise in international oil prices and news that the National Pension Service had halted currency hedging, the trend of a stronger won continued, recording the lowest level in nearly 1 year and 11 months based on closing prices.

On the 9th, the won/dollar exchange rate closed weekly trading at 1,336.1 won, down 9.5 won from the previous trading day. This is the lowest level in about 23 months since October 4, 2024 (1,333.7 won), based on closing prices.

The exchange rate opened at 1,341.1 won, down 4.5 won from the previous day, and briefly rose to 1,342.1 won in the morning. However, it later turned downward, expanding its decline in the afternoon and falling as low as 1,335.0 won during trading hours.

A strengthening yen led the trend of a stronger won. With growing expectations for additional interest rate hikes by the Bank of Japan (BOJ), the yen/dollar exchange rate dropped to the 152nd-yen range during trading today. As wage growth in Japan continued, positions betting on a weaker yen were liquidated, causing the yen's value to rise rapidly.

The overall downward pressure on the dollar due to the strengthening yen, combined with increased dollar sales by domestic export companies, contributed to the decline in the exchange rate. Analysts suggest that as the exchange rate has fallen rapidly recently, negotiation volumes from export companies expecting further declines have been steadily flowing in.

Inflows of foreign capital into the domestic stock market, driven by positive market sentiment, also acted favorably for the won. The won/dollar exchange rate had risen to 1,555.8 won on July 2 and has since fallen by nearly 220 won over approximately two months.

However, rising international oil prices and the National Pension Service's halt in currency hedging limited the downside for the exchange rate. Escalating tensions in the Middle East pushed Brent crude oil prices close to $100 per barrel. Rising oil prices could increase demand for dollar payments among domestic importers, potentially acting as a factor pushing up the won/dollar exchange rate.

The market expects the upcoming release of the U.S. consumer price index (CPI) to determine the next direction of the won/dollar exchange rate. If U.S. inflation comes in higher than expected, concerns over tightening by the Federal Reserve (Fed) could resurface, leading to a rebound in the dollar. Conversely, if signs of slowing inflation are confirmed, the possibility of further declines in the won/dollar exchange rate may increase.