Sangsangin: "Korea-U.S. Trade Agreement a Solid Outcome... 2026 Exchange Rate Forecast Maintained at 1,441 Won"

Sangsangin Securities stated on October 31 that despite the positive news of the Korea-U.S. trade agreement announcement, its medium-term outlook for the exchange rate remains unchanged, maintaining its previous forecast that the average won-dollar exchange rate in 2026 will be 1,441 won per dollar.

Choi Yechan, a researcher at Sangsangin Securities, analyzed in a report titled "Korea-U.S. Trade Agreement Announcement: What’s Next for the Exchange Rate?" that "the content of the agreement was a solid outcome. The key issue is the method of funding."

As the KOSPI index continues to hit record highs day after day, the status board in the dealing room of Hana Bank in Jung-gu, Seoul, displays the KOSPI and the won/dollar exchange rate on the 30th. On this day, the KOSPI opened at 4,105.95, up 24.80 points (0.61%) from the previous session, and at one point during the trading session, it reached an all-time high of 4,146.72. October 30, 2025 Photo by Jo Yongjun

First, regarding the results of the trade agreement, Choi evaluated, "Considering the size of Korea's economy, the $350 billion investment was a significant amount. However, by including non-cash investments such as cooperation in the shipbuilding industry and adjusting it to a split investment with an annual cap of $20 billion, both countries appear to have found a compromise that offers mutual benefits." Through this, Korea has eased the burden of a sudden outflow of dollars, while the United States has secured the scale of investment it had demanded.

Choi also noted, "In particular, regarding Korea’s most sensitive concerns about dollar funding and potential shocks to the foreign exchange market, a separate provision has been established that allows Korea to request adjustments to the timing and amount of payments if instability in the foreign exchange market is anticipated, thereby providing flexibility to respond." He added, "Other safeguards that enhance the likelihood of principal recovery, such as focusing on commercially viable projects and adjusting profit-sharing ratios, are also positive. The roughly 12-won drop in the dollar-won exchange rate in the overnight market immediately after the announcement reflects these expectations."

However, regarding the method of securing foreign currency, Choi pointed out, "Even if the spot foreign exchange market is not directly involved, the fact remains that Korea will use its foreign exchange reserves to carry out an annual $20 billion investment in the United States." He continued, "While this may reduce immediate market pressure to buy dollars, it is difficult to expect a sharp decline in the exchange rate, given the substantial net outflow."

According to Sangsangin Securities, based on data since 2010, when the Bank of Korea’s annual reserve assets change by $10 billion, the dollar-won exchange rate moves by an average of about 47 won. Choi explained, "It is difficult to rule out indirect upward pressure on the exchange rate. If the annual cap of $20 billion is invested overseas, it is estimated that there will be upward pressure of around 100 won on the exchange rate." He added, "Depending on the policy-based funding method, short-term market shocks may be limited, but if reserve assets continue to decline, fundamental upward pressure on the exchange rate will be inevitable."

He further noted, "Even though the total amount agreed upon in this deal has increased, the annual investment size remains at a level similar to previous expectations (around $20 billion per year), so the framework for the medium-term exchange rate outlook remains unchanged." He concluded, "If we reflect the additional premium from the U.S. investment (estimated at 47 won per $10 billion) on the previous forecast of a fair dollar-won exchange rate of 1,330 won in 2026, we maintain our projection that the average dollar-won exchange rate in 2026 will be about 1,441 won."

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