The recent developments in the foreign exchange market have seen the Korean won-U.S. dollar exchange rate approaching the 1,470 mark amidst a mixture of domestic political uncertainty and broader weaknesses in Asian currencies, leading to upward pressure. In the absence of factors driving a stronger won, the dollar index remains stable around 108. Authorities are expected to intervene subtly, and negotiating by exporting companies might slow down the pace of increase slightly.
On December 27, according to Seoul’s foreign exchange brokers, the won-dollar one-month contract traded at 1,467.0 won in the New York Non-Deliverable Forward (NDF) market overnight. Taking into account the recent one-month swap point (-1.40 won), the opening rate that day was projected to rise by 3.6 won compared to the previous day’s closing rate (1,464.8 won as of 3:30 PM).
The closing price in the early hours was 1,469.6 won, an increase of 4.8 won from the previous afternoon. The exchange rate reached a high of 1,470.0 won during the overnight market session before settling slightly lower. This is the first time the rate exceeded 1,470 won since March 16, 2009 (when it was 1,488 won).
The U.S. employment report released last night pushed the won-dollar rate up to 1,470 won intraday. According to the U.S. Department of Labor, initial jobless claims for last week (December 15-21) decreased by 1,000 to 219,000, marking a one-month low and falling short of market expectations (223,000).
In contrast, claims for continuing unemployment benefits rose by 46,000 for the week of December 8-14 to 1.91 million, the highest since November 2021, according to the U.S. Department of Labor. This exceeded the market estimate (1.88 million).
The won-dollar rate in the Seoul foreign exchange market is expected to face upward pressure due to domestic and external factors such as political instability and the weakness of Asian currencies. Prime Minister Han Duck-soo announced he would withhold appointing a constitutional judge until bipartisan consensus is reached, and the Democratic Party responded by launching an impeachment bill against Prime Minister Han, escalating political uncertainty.
Myung Kyun, a researcher at Woori Bank, noted that the foreign exchange market is paying attention to the intensified political uncertainty and weak Korean fundamentals, which could rapidly lead to a weaker won. Since Kazuo Ueda, Governor of the Bank of Japan, avoided mentioning a rate hike for January, expectations of benefiting from a stronger yen have also diminished.
Meanwhile, the demand for dollar purchases for importer payments still outweighs within the domestic supply-demand, reinforcing the exchange rate’s lower boundary.
However, it is anticipated that the foreign exchange authorities’ cautious micro-adjustments and inflow from exporters’ month-end negotiations (dollar selling) will slightly reduce the rate’s rise. The dollar index, indicating the value of the dollar against six major currencies like the euro and yen, remains around 108, its highest since November 2022.