Won Leads G20 Currencies Against Dollar, Drops to 1,470s as SK Hynix ADR, BOK Hike Ease Pressure
Forecast Trend Report by Period
Has the won emerged from the tunnel of extreme currency pressure?
SK Hynix ADR proceeds and BOK rate hike push dollar-won to a two-month low
The won strengthened into the 1,470s against the dollar for the first time in two months. Dollar supply from SK Hynix’s American depositary receipt issuance, foreign net buying of South Korean stocks and a Bank of Korea rate increase helped drive the exchange rate down by more than 70 won from the end of last month. Among Group of 20 currencies, the won has posted the biggest gain against the dollar this month.
In Seoul trading on July 20, the won closed at 1,478.4 per dollar, 2.0 won stronger than the July 16 close of 1,480.4. That represents a 5.2% drop in the dollar-won rate in 20 days from an intraday level near 1,560 won on July 1.
In foreign-exchange trading held on Constitution Day, July 17, the rate stood at 1,478.5 won per dollar as of 3:30 p.m. The July 20 close was 0.1 won lower, marking the lowest level since May 11, when the won ended at 1,472.4 per dollar. From 1,549.4 at the end of June, the rate has fallen 71 won, or 4.58%, the biggest drop since November 2022.
The won also outperformed every other G20 currency against the dollar. As of 3:40 p.m. on July 20, it had gained 4.75% from the end of the previous month. Sterling was next at 1.7%, followed by the Australian dollar at 1.63% and the Canadian dollar at 1.59%. The euro rose 0.35% and the Swiss franc added 0.24%. By contrast, the Taiwan dollar fell 1.63% and the Japanese yen slipped 0.08%.
The won’s strength is being tied to SK Hynix’s ADR listing. If the chipmaker converts the $26.5 billion raised through the issuance into won, that would boost dollar supply in the foreign-exchange market. Strong verbal intervention by South Korea’s foreign-exchange authorities has also fueled expectations for further won strength.
A pullback in the stock market also contributed as foreign investors turned net buyers of South Korean shares. Foreign investors tend to sell local stocks to rebalance when the Kospi rises sharply, then buy again when share prices retreat. They were net buyers of 222.6 billion won over the past week, returning to net purchases for the first time in four weeks. On July 20, they bought a net 510 billion won on the main board.
The Bank of Korea also supported the move in the exchange rate by raising its benchmark interest rate to 2.75% from 2.5% on July 16. That narrowed the gap with the US to 1 percentage point from 1.25 percentage points. The Korea-US rate differential, one factor behind won weakness, has eased somewhat. In the US, softer-than-expected consumer inflation reduced the chances of a rate increase at the Federal Open Market Committee meeting later this month.
“Foreign trading in local equities has shifted back to net buying, and inflows from SK Hynix’s ADR fundraising have added to that, creating supply-demand conditions in the foreign-exchange market that favor dollar supply,” Lee Min-hyuk, an economist at KB Kookmin Bank, said. With supply pressure easing, the medium- to long-term anchor for the exchange rate will depend on the growth gap between South Korea and the US and the monetary-policy paths of the two central banks, he added.
Lee also said that if South Korea’s second-quarter gross domestic product data due this week beat market expectations, that could strengthen expectations both for Korea’s relative growth outperformance against the US and for a narrower policy-rate gap. That, he said, could lead to a reassessment of the won’s fundamentals.
Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com
