Exchange Rate Drops to Around 1080 Won... How Long Will the Decline Last?

[Image source=Yonhap News]

[Asia Economy Reporter Koh Hyung-kwang] The won-dollar exchange rate, which had surrendered the psychological barrier of 1100 won just a day ago, has further dropped to the 1080 won range. Experts commonly agree that the won's strength will continue for the time being, as the 'weak dollar' sentiment persists due to expectations of additional U.S. economic stimulus measures, and domestic stock prices continue to hit record highs.

According to industry sources on the 5th, the won-dollar exchange rate closed at 1082.1 won on the Seoul foreign exchange market, down 14.9 won from the previous day. This is the lowest point in two and a half years since June 2018, and it has plunged 24.1 won in just three days since the 1st of this month.

Experts note that following the U.S. presidential election, uncertainty about the U.S. economy has eased, and with the release of COVID-19 vaccines and expectations of a global economic recovery, risk appetite has strengthened, causing the dollar to show broad weakness. News that discussions on U.S. economic stimulus have resumed is also fueling the dollar's weakness.

The won-dollar exchange rate, which surged to a high of 1285.7 won in March this year amid the rapid spread of COVID-19, recovered to pre-COVID-19 levels around September to October and has since been on a sharp downward trend. Expectations for COVID-19 vaccine development have increased, and with the U.S. maintaining zero interest rates and implementing stimulus measures, risk asset preference has strengthened. In particular, as signs of economic recovery in Korea have become relatively stronger, the won's value has surged sharply.

Another main reason for the won's strength is foreign investors converting their currency into won to increase investments in the recently booming KOSPI market. Kwon Ah-min, a researcher at NH Investment & Securities, analyzed, "As risk-on sentiment spreads due to the global weak dollar, the KOSPI is hitting new highs daily, and the won is expanding its strength. Expectations for additional U.S. stimulus and vaccine rollouts are also contributing to the spread of the weak dollar and risk-on mode." Gong Dong-rak, a researcher at Daishin Securities, stated, "Until the global economy escapes recession and moves beyond the initial recovery phase, the current won strength will continue for a considerable period. The lower target for the won-dollar exchange rate is also seen at the previous low level of 1050 won."

This content was produced with the assistance of AI translation services.