Won-Dollar Exchange Rate Nears 1430 Won... 'Offshore Exchange Rate Surge'

Surpassing 1,420 Won at Market Open
Soaring Near 1,430 Won Intraday
Volatility Increases Amid Offshore Exchange Rate Swings
Helpless Despite Foreign Exchange Authorities' Response

On the morning of the 26th, the won-dollar index is displayed on the electronic board in the dealing room of Hana Bank in Jung-gu, Seoul. [Image source=Yonhap News]

The won-dollar exchange rate surpassed 1,420 won on the 26th, soaring to its highest level in 13 years and 6 months. This surge was influenced by the combination of the U.S.'s aggressive tightening and speculative trading by foreigners, which caused a sharp rise in the offshore Non-Deliverable Forward (NDF) market. Despite the foreign exchange authorities announcing various measures over the weekend to stabilize the foreign exchange market, including support for shipbuilders' forward sales, they remain powerless against the "King Dollar" (the dollar's extreme strength).

On that day, in the Seoul foreign exchange market, the won-dollar exchange rate started at 1,419.0 won, up 9.7 won from the previous trading day, and immediately surpassed 1,420 won, setting a new high. This is the highest level since March 31, 2009, during the financial crisis, 13 years and 6 months ago. The exchange rate maintained its sharp rise, reaching the 1,429 won range during the morning session. Experts predict that if the current trend continues, the upper limit should be broadly open, with the rate potentially rising to 1,500 won per dollar.

It is interpreted that the one-month won-dollar NDF rate in the offshore market surged to around 1,420 won after last week's domestic market close, which sharply pulled up the spot exchange rate in the Seoul foreign exchange market that day. The NDF market, mainly participated in by offshore players, is highly active in speculative trading and thus has a significant impact on the domestic market. According to data received by Hong Seong-guk, a member of the Democratic Party of Korea, from the Bank of Korea, the net purchase volume of NDF by foreign investors at domestic foreign exchange banks last month was $6.08 billion, marking the highest level this year.

Last week, the Bank of Korea announced plans to sign a $10 billion currency swap agreement with the National Pension Service, and Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho also stated the day before that about $8 billion worth of shipbuilders' forward sales would be supplied as dollars to the domestic foreign exchange market. However, these measures failed to stop the rising exchange rate. Jung Yong-taek, a researcher at IBK Investment & Securities, said, "Due to the U.S.'s commitment to price stability, the Russia-Ukraine war, and Japan's firm accommodative stance, funds inevitably flow into the dollar."

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