This month, the South Korean won has appreciated at the fastest pace among major currencies, shifting the foreign exchange market’s momentum from dollar strength to won strength. Expectations of massive dollar inflows from SK Hynix’s American Depositary Receipt (ADR) issuance, combined with the Bank of Korea’s base rate hike, have pushed the KRW/USD exchange rate to a two-month low while also breaking its correlation with the Japanese yen.
According to Yonhap Infomax on July 19, the KRW/USD exchange rate closed regular trading at 1,478.5 won on July 17, marking its lowest level in approximately two months since May 11 (1,472.4 won). Earlier this month, the rate had approached 1,560 won during intraday trading before plunging nearly 30 won on July 8, falling below the 1,500-won threshold and accelerating its decline. On a monthly basis, the rate has dropped 70.9 won from the end-of-June close of 1,549.4 won — the steepest monthly decline in three years and eight months since November 2022.
The won’s value against the dollar has surged 4.27% this month alone, ranking first in appreciation among 20 major currencies — roughly three times the gain of second-place British pound (1.45%). Over the same period, the Japanese yen (0.08%), Chinese onshore yuan (0.17%), and euro (0.15%) posted only modest gains against the dollar. The Dollar Index fell just 0.4%, underscoring the won’s standout performance.
The primary catalyst for the won’s surge is SK Hynix’s ADR listing proceeds. Expectations that approximately $26.5 billion (roughly 39.4 trillion won) raised through SK Hynix’s Nasdaq ADR listing will flow into South Korea’s domestic foreign exchange market have fueled won-buying sentiment. Suh Jeong-hoon, senior research fellow at Hana Bank, explained: “Volumes believed to be SK Hynix’s dollar sales have been entering the market recently in the form of spot foreign exchange. Once the rate fell below 1,500 won, upward expectations collapsed, and it quickly moved into the 1,480-won range.”
The Bank of Korea’s base rate hike is also underpinning won strength. The central bank’s Monetary Policy Board raised the base rate by 0.25 percentage points on July 16, from 2.5% to 2.75% per annum — its first increase in three and a half years. With the U.S. Federal Reserve in a blackout period ahead of this month’s Federal Open Market Committee (FOMC) meeting, South Korea has moved ahead in monetary tightening, highlighting the won’s relative attractiveness.
Supply-demand conditions have also turned favorable for the won. Foreign investors, who had been heavily net-selling South Korean stocks earlier this month and fueling the exchange rate’s rise, have shifted to net buying as rebalancing demand eased following the KOSPI’s sharp correction. Foreigners purchased approximately 222.6 billion won (approximately $149.7 million) worth of domestic stocks over the past week, flipping to a net buying position after four weeks. Lee Min-hyuk, economist at KB Kookmin Bank, assessed: “As the KOSPI underwent a significant correction, foreign rebalancing eased, and positioning adjustments likely occurred as SK Hynix ADR inflows were priced in. Supply-demand conditions have shifted from dollar-demand dominance to supply dominance.”
Corporate dollar sales driven by strong semiconductor exports are also adding downward pressure on the exchange rate. South Korea’s current account surplus hit a record $38.61 billion in May, led by semiconductors, while June exports surpassed $100 billion (approximately 148.7 trillion won) for the first time ever. Lee Jin-kyung, senior researcher at Shinhan Investment Securities, said: “While external dollar strength pressures persist and geopolitical risk-aversion sentiment could stimulate the upside, the Bank of Korea’s rate hike, robust exports, and improving domestic supply-demand expectations will cap the exchange rate’s upper bound.”
The won’s strength has also severed its correlation with the yen. While the USD/JPY rate remains elevated, trading at 162.400 yen on July 18 after surging to the high 162-yen range earlier this month, the KRW/JPY cross rate fell to 908.11 won per 100 yen as of July 17 — its lowest level in approximately 20 months since November 26, 2024 (906.76 won), when yen weakness was extreme. Min Kyung-won, economist at Woori Bank, diagnosed: “While yen recovery has stalled, the won has strengthened on the back of real export payment conversion demand and the Bank of Korea’s rate-hiking stance, breaking the correlation between the two currencies.”
Major institutions see potential for the KRW/USD rate to fall to the low-to-mid 1,400-won range in the second half of the year. Economist Min Kyung-won projected a second-half range of 1,380–1,560 won, stating: “As exporters’ conversion demand grows and foreign investment flows turn to inflows, the won’s gradual strengthening trend will continue through year-end.” Economist Lee Min-hyuk added: “If the rate breaks below the psychological support level of 1,480 won, the downside opens to 1,450 won in the short term.” Senior Research Fellow Suh Jeong-hoon expects a gradual decline to around 1,450 won by year-end, noting: “With South Korea raising rates ahead of the U.S. and growth outlooks improving, fundamentals are also positive for the won.”
However, Middle East geopolitical risks remain the biggest upside variable for the exchange rate. If U.S.-Iran conflict escalates, international oil prices and the dollar could rise together, pushing the rate back above the 1,500-won level. Indeed, after falling to 1,478.5 won in regular trading on July 17, the rate rebounded 7.5 won amid heightened Middle East tensions, closing at 1,486.0 won as of 6 a.m. on July 18. A foreign exchange authority official explained: “While Middle East uncertainty persists, the decline accelerated due to overlapping factors including offshore dollar sales aimed at reducing domestic equity currency hedges and expectations of SK Hynix ADR funds entering the foreign exchange market.”
Meanwhile, some voices express concern that the won’s rapid appreciation could create headwinds for exports and growth. South Korea’s economy is highly externally dependent, with exports accounting for a large share of GDP. A steep decline in the exchange rate would reduce won-denominated export revenues for the same volume of goods sold, potentially negatively impacting corporate earnings, investment, and employment. This has raised the possibility that authorities may intervene by purchasing dollars in the market to prevent excessive one-sided won appreciation.
