"Even After Impeachment Uncertainty Disappears, Supply-Demand Burden Remains... Difficult for Dollar-Won Exchange Rate to Stabilize Downward"

Even if political uncertainty related to impeachment is resolved, the dollar-won exchange rate is unlikely to show a clear short-term decline due to supply and demand pressures, according to an analysis from the securities industry.

On the 26th, Jae-Hyun Wi, a researcher at NH Futures, stated in the report "Urgent Check on the Dollar-Won Exchange Rate" that "While political uncertainty is a factor in the won's weakness, the ongoing excess demand for the dollar also supports the lower bound of the dollar-won exchange rate," and revised the annual exchange rate forecast upward from the previous 1360 (lower bound)~1470 won (upper bound) to 1380~1500 won. This analysis suggests that the won's weakness will continue.

On the 26th, the KOSPI and the dollar-won exchange rate, which started trading that day, are displayed on the dealing room screen at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Yonhap News

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First, Wi analyzed the dollar index, which represents the value of the dollar against major currencies, showing a weak trend since the beginning of the year, saying, "The market largely interpreted the tariff policies of the Donald Trump administration not as inflationary but as a factor for economic slowdown, and Europe's fiscal expansion drove the euro's strength." However, unlike the recent decline of the dollar index to pre-Trump inauguration levels, the dollar-won exchange rate has reached a yearly high point (1472.5 won). On the previous day in the Seoul foreign exchange market, the dollar-won exchange rate (weekly closing price) was recorded at 1469.2 won.

Regarding this, Wi explained, "It is the result of both prolonged domestic political uncertainty due to the impeachment situation and a structural imbalance in foreign exchange supply and demand." He added, "Domestic political uncertainty is likely to be resolved by early April at the latest. Once the impeachment situation is settled, a temporary decline in the exchange rate may accompany the resolution of uncertainty," but he pointed out, "The problem is supply and demand."

He explained, "Even after the domestic political uncertainty is resolved, unless the supply and demand burden is resolved, it will be difficult for the dollar-won exchange rate to stabilize downward," adding, "Domestic investors' overseas securities investments and domestic companies' FDI investment standby funds are all stimulating dollar demand, while the willingness of exporters to sell dollars appears to have decreased due to expanded domestic and international political uncertainty."

Furthermore, he diagnosed, "The supply and demand burden may be prolonged depending on the Trump administration's tariff policies," and said, "Unless there is a liquidation of domestic investors' overseas investment funds due to a sharp drop in overseas stock markets or a significantly eased tariff policy by Trump, a trend downward in the dollar-won exchange rate will be difficult in the short term."

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