Why it matters. The won's slide is a real-time gauge of how Middle East conflict and global chip demand ripple through Asia's fourth-largest economy, affecting import costs, inflation, and foreign investment flows that reach well beyond Korea.
Background. South Korea imports almost all of its oil, so crude-price swings hit the won hard. The 1,500-per-dollar level is a key psychological threshold rarely breached except in crises, and the country's stock market is dominated by export-heavy chipmakers like Samsung and SK Hynix, making the KOSPI unusually sensitive to global semiconductor demand and Nvidia's fortunes.
What to watch next. Watch the June 18 launch of the $350 billion U.S.-investment law and any U.S.-Iran ceasefire progress, either of which could decisively move the won.
The South Korean won has traded above 1,500 to the U.S. dollar for 12 straight sessions as of June 2, the longest such streak since 2000 and a run that now exceeds the 11-day record set during the 2009 global financial crisis. In Seoul trading, the won closed at 1,516.4 per dollar, weakening by 12.1 won from the previous session, as a prolonged Middle East conflict, volatile oil prices, and foreign selling tied to a record-breaking domestic stock rally combined to push the currency lower.
A Record Streak of Weakness
The won (Korea’s currency, abbreviated KRW) first broke past the psychologically significant 1,500 mark on a closing basis on the 15th of last month, settling at 1,500.8. It has stayed in the 1,500-won range every session since. The previous endurance record came during the financial crisis, when the won held above 1,500 for 11 consecutive trading days from February 24 to March 10, 2009. The current streak surpasses that, marking the longest stretch above the line in more than two decades.
Intraday, the pressure has been even sharper. The rate pushed past 1,520 during the day for the first time in two months, since the won touched an intraday high of 1,524.1 on April 2. The currency’s recent path has been turbulent: it first crossed 1,500 in March on broad dollar strength after the Middle East conflict began, eased back into the 1,400s in April on hopes of a ceasefire, then broke through 1,500 again last month.
Why the Won Is Falling
Analysts point to two main forces. The first is geopolitical. Stalled ceasefire negotiations between the United States and Iran have kept markets on edge, sending international oil prices swinging sharply. Because South Korea imports nearly all of its crude and is heavily dependent on oil, that volatility weighs directly on the won.
The second is, paradoxically, the strength of Korea’s own stock market. The benchmark KOSPI index closed at an all-time high of 8,801.49 on June 2, lifted by a semiconductor boom and what local media have dubbed the “Jensen Huang visit effect” — a reference to a recent trip to Korea by the chief executive of U.S. chipmaker Nvidia. The KOSPI broke 7,000 on the 6th of last month and cleared 8,000 within roughly 20 days. The rally has had an unexpected side effect: foreign passive funds, which track stock indexes, have mechanically trimmed their allocations to Korea as an emerging market, pulling dollars out of the country even as share prices soar.
“The dollar deficit in financial markets is overwhelming the dollars coming in from the current account surplus,” said Min Kyung-won, a researcher at Woori Bank, one of Korea’s major commercial lenders. Adding to the squeeze, Korean exporters appear to be holding much of their dollar earnings in dollars rather than converting them back into won.
What Comes Next
Market watchers broadly expect the high exchange rate to persist for now. A new special law governing a total of $350 billion in Korean investment into the United States is set to take effect on the 18th, and analysts say upward pressure on the dollar could intensify once the spending is actually carried out.
There are, however, scenarios that could pull the won back down. A resolution to the Middle East war, a correction in the overheated KOSPI, a breakthrough in U.S.-Iran negotiations, or direct intervention by Korea’s foreign-exchange authorities could each ease the strain. “In the short term, the rate is likely to stay in the 1,500-won range for a while,” Min said, “but if there is a deal between the U.S. and Iran, or intervention by the authorities, it could come back down into the 1,400s.”
