Kwon Min-su, Deputy Governor of the Bank of Korea, delivers his inaugural address at his inauguration ceremony held at the BOK headquarters in Jung-gu, Seoul, on the 21st. Photo courtesy of the Bank of Korea
The won-dollar exchange rate fell for a sixth straight session, dropping to the mid-1,380s per dollar and touching 1,380 during the session — its lowest in about 11 months. Dollar selling tied to shareholder returns at Samsung Electronics (005930.KS) and SK hynix (000660.KS), combined with strong offshore bets on a firmer won and custody-related flows, accelerated the currency’s gains.
In the Seoul foreign exchange market, the won-dollar rate closed at 1,386.5, down 6.1 won from the previous session’s close of 1,392.60. On a closing basis, it was the lowest level since September 17 last year, when it stood at 1,380.1. During the session, it slid as far as 1,380.3, the lowest since September 18 last year, when it reached 1,380.0.
The decline was driven mainly by offshore dollar selling. With the 1,400 line breaking faster than expected, offshore bets on a stronger won aimed at further declines are seen as having intensified.
“It appears that strong bets on won strength are coming in from offshore,” a foreign exchange dealer at a commercial bank said.
Shareholder returns at Samsung Electronics and SK hynix are also cited as a factor increasing pressure to sell dollars. As expectations for shareholder payouts at the two chipmakers have grown recently, demand to convert the related funds into won has emerged, and the custody flows handling those funds have also fed into dollar selling, according to market participants.
Adding to this, expectations are growing that the won’s strength could continue for some time, driven by improving fundamentals rather than temporary supply-and-demand factors.
Lee Nam-kang, an economist at Korea Investment Holdings, said, “When I nowcast South Korea’s real GDP growth rate for the third quarter, it again comes out above 1%.” He added, “If this kind of growth pace materializes, the won-dollar rate could touch the low 1,300s this year.”
He also offered an analysis that chipmakers’ earnings could significantly lift future growth. “This year’s operating profits at Samsung Electronics and SK hynix are likely to raise next year’s nominal GDP by 250 trillion to 300 trillion won,” the economist explained. “Converting that amount into real terms, these companies alone would raise next year’s real GDP by 1.3%.”
This suggests that the recent decline in the won-dollar rate may go beyond simple inflows of foreign stock investment or temporary dollar selling, potentially extending into fundamental factors such as improved growth and corporate earnings driven by a semiconductor boom.
Remarks on the exchange rate from Kwon Min-soo, the Bank of Korea’s deputy governor who took office that day, also added to sentiment favoring a stronger won. Commenting on the recent won-dollar trend, Kwon said, “The stabilization of the exchange rate was partly influenced by short-term flows as the stock market underwent a correction,” while adding, “Fundamentally, I think it is right that it is heading downward.”
Also notable is that the possibility of consecutive base-rate hikes — so-called “back-to-back” increases — ahead of the Bank of Korea’s Monetary Policy Board meeting next week has been partly priced into the won-dollar rate. The market sees a hold as its base scenario, but analysts say that if growth proves stronger than expected, expectations for a rate cut could be pushed back, which could become a factor for won strength.
