[Why&Next] Soaring Dollar Demand Drives High Exchange Rate... Is Won Weakness Becoming the New Normal?

Despite Korea-U.S. Tariff Negotiations, Only Modest Adjustment
Intraday Rate Approaches 1,480 Won This Month
The Weakest Currency: The Won Posts the Largest Drop Among Major Currencies
Individuals, National Pension Service, and Corporations Ramp Up Overseas Investments
Stronger Dollar-Buying and Holding Sentiment
Scarcity of Dollars Triggers Structural Weakness in the Won
"Demand for Dollars Will Keep Rising"... Possibility of Prolonged Won Weakness
Government Also Focuses on Structural Changes in FX Supply and Demand

The trend of a high exchange rate in the mid-to-high 1,400 won range has continued for ten consecutive days. The won-dollar exchange rate appeared to be adjusting downward after the Korea-U.S. tariff negotiations at the end of last month, but since the beginning of this month, it has surged to the 1,475 won level during intraday trading, with the upward momentum actually intensifying. Although verbal intervention by the foreign exchange authorities has limited the scale of the increase, it has not been able to reverse the overall trend. Compared to other major economies, this is an unusual case of 'won weakness.' Experts analyze that structural changes, such as increased overseas investments by individuals and institutions and greater outbound foreign direct investment by companies, are driving this trend. The so-called growing sentiment to buy and hold U.S. dollars is triggering the depreciation of the won, and as a result, there is even talk of the possibility of this situation becoming structurally prolonged.

While the yen fell 0.2%, the won plunged 2%... Unusual severity of the won's depreciation

According to the Seoul foreign exchange market on the 18th, the previous day’s won-dollar exchange rate closed weekly trading at 1,458.0 won, up 1.0 won from the previous session. Opening at 1,451.0 won, it climbed as high as 1,463 won during the session, resulting in a fluctuation of more than 10 won. Even though the foreign exchange authorities made a strong verbal intervention on the 14th, stating, "We will use all available tools to stabilize the exchange rate," the strong dollar trend was not curbed. In overnight trading (as of 2 a.m.), the rate closed even higher at 1,460.4 won. The exchange rate has remained above the 1,450 won level for ten consecutive days since the 7th (1,456.9 won).

The won-dollar exchange rate has risen sharply this month. After the Korea-U.S. summit's tariff negotiations were concluded, the rate fell to 1,426.5 won on October 30 (weekly closing basis) and dropped further to 1,424.4 won the following day, but then began to climb rapidly. Up to the 17th of this month, the average won-dollar exchange rate was 1,453.0 won, surpassing the level seen in April (1,441.9 won), when concerns over U.S.-China tariffs peaked. This trend is excessive even compared to other major currencies. While the won-dollar exchange rate rose 2.04% this month, the yen-dollar exchange rate increased by only 0.23%. This means the value of the won has fallen significantly more.

Foreign exchange market's 'structural' supply-demand imbalance draws more attention than foreign investor selling

Market analysis suggests that the recent surge in the exchange rate is the result of a combination of domestic and international factors. The global environment, including the end of the U.S. government shutdown and the weakening yen, contributed to the strong dollar trend, while the outflow of foreign investor funds from the domestic stock market was identified as a direct cause of the increase. In fact, foreign investors sold a net total of 9.128 trillion won in the domestic stock market alone from the beginning of this month through the 14th. This indicates a corresponding increase in demand to convert won into dollars, which fuels the rise in the exchange rate. However, the market views this as a temporary phenomenon driven by profit-taking following a stock market rally, rather than a long-term trend.

Both the government and the market are paying close attention to the structural changes in supply and demand within the domestic foreign exchange market. In the past, the inflow and outflow of foreign investor funds determined the exchange rate, but now, structural changes such as active overseas investments by domestic economic agents are triggering the won's depreciation. Lee Minhyeok, a researcher at KB Kookmin Bank, said, "If we consider the structural factors behind the recent surge in the exchange rate, the very structure of supply and demand in Korea's foreign exchange market has changed significantly," adding, "With the expansion of outbound direct investment and equity investment, there has been a long-term outflow of dollars since the COVID-19 pandemic."

The National Pension Service is the primary driver of this structural change. Since starting overseas investments in 2001 and increasing its allocation to equities after the global financial crisis, the National Pension Service's overseas investment ratio reached 58.34% of its total assets as of August this year.

After the global stock market underwent a sharp correction due to COVID-19, the scale of individual investments in U.S. stocks has also reached a level that can no longer be ignored. The cumulative overseas stock investment by individual investors reached 116.1 billion dollars at the end of last year, an eightfold increase over five years. In particular, during October alone, individuals made net purchases of 6.8 billion dollars, the largest monthly figure since statistics began in 2011. Min Kyungwon, a researcher at Woori Bank, said, "Since October, all supply and demand in the foreign exchange market has essentially been driven by so-called 'Seohak Ants' (Korean retail investors trading foreign stocks)." Shin Soyeyong, a researcher at Shinhan Bank S&T Center, also stated, "Recently, supply and demand have been the dominant forces driving the exchange rate in the foreign exchange market," adding, "While Seohak Ants may be smaller in scale and focus compared to institutions, they have now grown to rival the National Pension Service in size, exerting significant influence over the market's supply and demand. Recently, their activity has even surpassed the scale of foreign investor inflows, solidifying the dominance of dollar strength in the market."

Individuals' overseas investments influence corporate FX strategies... Companies say, 'We need to hold more dollars' ahead of U.S. investments

As the KOSPI opened with a rise of more than 1%, approaching the reclaiming of the 4100 level, the status board in the dealing room of Hana Bank in Jung-gu, Seoul, displayed the KOSPI, won/dollar exchange rate, and KOSDAQ index on the 17th. On this day, the KOSPI started the session at 4,078.571, up 67.00 points (1.67%) from the previous close. November 17, 2025 Photo by Jo Yongjun

The market points out that as overseas investments by institutions and individuals have rapidly expanded, export companies are also delaying the timing of converting their dollars into won. Moon Daun, a researcher at Korea Investment & Securities, said, "As overseas investments by residents have expanded rapidly, there is now an expectation of further short-term depreciation of the won," adding, "Exporters are increasingly incentivized to hold on to their dollars in order to sell them at higher exchange rates."

There is also little incentive for exporters to release dollars into the market, as they are making or planning investments in the United States to respond to U.S. tariff hikes. As companies expand their investments in the U.S., the so-called scarcity of dollars has intensified. The growing tendency to increase or stockpile dollar holdings, rather than converting export proceeds into won, further raises the possibility of a structurally weaker won.

The Ministry of Economy and Finance, the Bank of Korea, and other foreign exchange authorities are closely monitoring these structural changes. At a market situation review meeting on the 14th, they stated, "Structural improvements in foreign exchange supply and demand are needed," and warned, "If supply-demand imbalances become prolonged, market expectations for a weaker won could become entrenched, which could significantly affect the downward rigidity of the exchange rate."

Market assessments of the recent depreciation of the won are mixed. Park Sanghyun, a researcher at iM Securities, said, "Considering the rapid increase in Korea's net overseas assets, the country's foreign currency position is actually improving," adding, "In the absence of warning signs for the domestic economy, the current exchange rate level could actually enhance the price competitiveness of Korean exporters and partially buffer the impact of high U.S. tariffs." On the other hand, Lee Minhyeok pointed out, "Since Korea is heavily dependent on imports for raw materials, exporters cannot simply welcome the situation, and domestic prices could also rise," adding, "If the high exchange rate becomes entrenched, the Bank of Korea's room to cut interest rates could be reduced, or it may even be forced to raise them."

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