The South Korean won fell to its lowest level against the U.S. Dollar in over two decades on Friday, briefly surpassing 1,500 won per dollar, as geopolitical tensions in the Middle East and rising oil prices fueled currency volatility. The won closed at 1,470.1 won per dollar, according to the Chosun Ilbo, marking its weakest point since the 1998 Asian financial crisis.
The currency’s decline comes amid heightened concerns over the potential for a wider regional conflict following recent escalations. Korean stocks also experienced their worst day of the year, reflecting investor anxieties. Reuters reported that the combined impact of these factors prompted South Korean authorities to proceed on alert.
The surge in oil prices is a significant contributor to the won’s weakness. South Korea is heavily reliant on imported oil, and a sustained increase in prices puts pressure on the country’s trade balance and contributes to inflationary concerns. MSN reported that South Korean President Yoon Suk Yeol invoked the first fuel price ceiling in 30 years in an attempt to mitigate the impact of oil prices reaching $120 a barrel.
Japan and South Korea have both signaled their intention to intervene in foreign exchange markets to stabilize their currencies, according to Seeking Alpha. Both nations are facing similar pressures from a strengthening dollar and rising oil prices. The joint commitment to address forex volatility suggests a coordinated effort to prevent further depreciation of their respective currencies.
The weakening won is particularly challenging for South Korean small and medium-sized enterprises (SMEs) and startups that rely on exports. KoreaTechDesk reported that these businesses are facing a double blow from increased logistics costs and currency turbulence, potentially hindering their growth, and competitiveness.
Currency-exposed exchange-traded funds (ETFs) have outperformed as the won weakens, according to the Seoul Economic Daily. This indicates that investors are positioning themselves to benefit from further depreciation of the Korean currency.
OCBC Bank analysts, as reported by FXStreet, note upside risks for the USD/KRW pair, citing key resistance levels. The bank suggests that the won’s downward trajectory may continue as long as global risk sentiment remains fragile and oil prices remain elevated.
The South Korean government has not yet issued a formal statement beyond the implementation of the fuel price ceiling, and has not indicated any specific intervention measures beyond the stated commitment to monitor the situation closely.
