Won continues to depreciate against strong dollar, hitting more than 13-year low

Posted on : 2022-08-23 16:51 KST Modified on : 2022-08-23 16:51 KST
The won-dollar exchange rate closed at 1,339.8 on Monday, and experts say 1,350 is on the horizon
A monitor in the Hana Bank dealing room in downtown Seoul shows the won-to-dollar exchange rate on Aug. 22. (Kim Gyoung-ho/The Hankyoreh)
A monitor in the Hana Bank dealing room in downtown Seoul shows the won-to-dollar exchange rate on Aug. 22. (Kim Gyoung-ho/The Hankyoreh)

The won-dollar exchange rate exceeded 1,330 won for the first time in more than 13 years on Monday. This is mainly due to the US dollar racking up strength amidst the prospect of further US interest rate hikes and concerns of a potential recession in Europe.

According to market trends, the won-dollar exchange rate may soar to the upper 1,300-won range before the end of the year.

On Monday, the won-dollar exchange rate closed at 1,339.8 won in the Seoul foreign exchange market, up 13.9 won from the previous trading day. The exchange rate on Monday started off at 1,335.5 won, then climbed up to 1,340.2 won during afternoon trading, and ended the day after dropping just below 1,340 won.

This marks the first time in 13 years and 4 months that the won-dollar exchange rate breached the 1,330-won mark, the last being on April 29, 2009, when the exchange rate stood at 1,340.7 won to the dollar.

In 2009, the exchange rate fluctuated due to growing fears of an economic recession after the global financial crisis.

While the dollar is once again growing in power, the value of the won is plummeting. The US dollar index, which fell to 104 earlier this month, recently rebounded to 108.

Repeated hawkish remarks made by the US Federal Reserve are also believed to have had an impact.

In particular, market watchers are on high alert for Fed Chair Jerome Powell's scheduled remarks at the upcoming conference of central banks slated for Aug. 25 in Jackson Hole, Wyoming, in the US.

Concerns are also high regarding the darkening economic outlook centered on Europe and China.

In Europe, many say that an energy crisis is becoming increasingly visible due to Russia’s restrictions on natural gas supply to Europe. As the economy takes a hit, inflation is expected to worsen due to the simultaneous soaring of gas prices.

Similarly, in China, various real economic indicators are recording low numbers due to the impact of the COVID-19 pandemic, further raising concerns.

Meanwhile, the worsening trade balance also has a direct impact on the value of the Korean won.

According to data released Monday by the Korea Customs Service, South Korea’s trade balance recorded a deficit of US$10.21 billion so far this month (Aug. 1-20), further raising the possibility that Korea will post its fifth consecutive month in the red.

The balance of goods, including transit trade, is still in the black, but the surplus of the deficit is on the decline.

Even though the balance of payments may improve with the recent decrease in international oil prices, the improvement is expected to be limited given gas supply shortages and the sluggish economic growth of Korea’s major trading partners.

Market experts are also saying that the won-dollar exchange rate could soon breach the 1,350-won mark.

“The threat of the 1,350 won level in the won-dollar exchange rate has also entered the visible range,” according to a report by Park Sang-hyeon and Ryu Jin-lee, researchers at Hi Investment & Securities.

Similarly, in late July, Kwon A-min, a researcher at NH Investment & Securities, predicted the upper limit of the won-dollar exchange rate to be 1,380 won in the fourth quarter of this year.

By Lee Jae-yeon, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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