Won/Dollar Exchange Rate Volatility and Q2 Foreign Exchange Trends

South Korean Foreign Exchange Market Surges to Record Highs in Q2 2025

Seoul, South Korea – The South Korean foreign exchange market experienced an unprecedented surge in activity during the second quarter of 2025, reaching its highest daily transaction volume since statistical records began in 2008. The Bank of Korea reported that the average daily foreign exchange transactions by foreign exchange banks climbed to $82.6 billion, a significant increase of $9.4 billion (12.9%) from the preceding quarterS $72.7 billion.

This remarkable growth is attributed to several factors,including the expanded trading hours for the foreign exchange market. Analysts suggest that the increased trading volume has led to greater volatility in the won/dollar exchange rate, which saw a noticeable jump from 0.36% in the first quarter to 0.61% in the second quarter. This heightened volatility appears to have spurred increased investment in foreign securities by domestic entities. Data indicates that the average monthly domestic securities investment adn selling amount by foreigners rose from 223 trillion won in Q1 to 238 trillion won in Q2,underscoring the market’s increased dynamism.

Breaking down the activity by product,spot foreign exchange transactions saw a significant increase,reaching $32.77 billion daily,up $4.82 billion (17.3%) from the previous quarter. Foreign exchange derivatives trading also contributed to the overall surge, with daily volumes reaching $49.9 billion, marking a $4.58 billion (10.2%) rise quarter-on-quarter.

Examining the participants,both domestic banks and foreign branches operating in Korea reported increased trading volumes. Domestic banks saw their transactions rise by $47.3 billion (14.5%) to $37.7 billion daily, while foreign branches experienced an 11.6% increase, adding $44.7 billion to their daily trading volume from the preceding quarter.

The won/dollar trading pair was a primary driver of this growth,with daily transactions reaching $25.5 billion, an remarkable increase of $5.16 billion (25.3%). Both domestic and foreign branches saw significant gains in their won/dollar trading, with domestic banks up $2.8 billion (18.3%) and foreign branches up $2.2 billion (16.0%).

Transactions involving different counter-parties also reflected the market’s expansion. Mutual transactions between foreign exchange banks saw a $2.38 billion (16.3%) increase, reaching $16.96 billion daily. Transactions with domestic customers of foreign exchange banks and non-residents also climbed by $1.29 billion (17.1%) and $1.16 billion (19.9%) respectively, reaching $8.8 billion and $6.98 billion daily.

Within the derivatives market, futures trading, particularly in Non-Deliverable Forwards (NDFs), showed robust growth, increasing by $1.98 billion (14.8%) to $1,539 billion. Overall foreign exchange swap trading rose by $2.36 billion (7.9%) to $32.9 billion, with notable contributions from both foreign exchange banks and non-residents.

What impact did the US Federal Reserve’s policy have on the KRW/USD exchange rate in Q2 2025?

Q2 2025 Performance: A Deep dive into KRW/USD

The second quarter of 2025 witnessed significant Won/dollar exchange rate volatility, driven by a complex interplay of global economic factors, domestic South Korean policy, and shifting investor sentiment. Understanding these trends is crucial for businesses involved in foreign exchange trading, international trade with South Korea, and KRW/USD forecasting.This article provides a detailed analysis of the key drivers and trends observed during Q2, offering insights for navigating the current market landscape.

Key Drivers of KRW/USD Fluctuations

Several factors contributed to the observed volatility in the Korean Won to US Dollar exchange rate during Q2 2025:

US Federal Reserve Policy: Hawkish signals from the US Federal Reserve regarding potential interest rate hikes continued to strengthen the US Dollar globally.This put downward pressure on the Won, as investors favored USD-denominated assets. USD strength was a dominant theme.

South Korean Economic data: Mixed economic data from South korea, including fluctuating export figures and concerns about slowing global demand, created uncertainty around the Won’s outlook. Specifically, a slight dip in semiconductor exports – a major component of the Korean economy – weighed on the currency.

Geopolitical Risks: Ongoing geopolitical tensions in the region, particularly concerning North Korea, added a risk premium to the Won, increasing its sensitivity to negative news. Geopolitical risk often leads to safe-haven currency flows into the USD.

Global Risk Appetite: shifts in global risk appetite considerably impacted the KRW/USD pair. Periods of risk-off sentiment saw investors flock to the US Dollar, while risk-on periods provided some support for the Won.

Foreign Investment Flows: Net foreign investment flows into and out of South Korean equity and bond markets played a role.Outflows generally weakened the Won, while inflows provided support.

Analyzing the Q2 2025 Exchange Rate Movements

The KRW/USD exchange rate began Q2 2025 at approximately 1,350 Won per US Dollar. Throughout the quarter, it experienced notable fluctuations:

April: Initial strengthening of the US Dollar due to positive US economic data pushed the rate towards 1,375 KRW/USD.

May: A brief period of Won gratitude occurred mid-May, driven by positive sentiment surrounding potential easing of geopolitical tensions and a slight recovery in export growth, bringing the rate back to around 1,340 KRW/USD.

June: Renewed concerns about global economic slowdown and further hawkish comments from the Fed led to a sharp depreciation of the Won, peaking at 1,390 KRW/USD by the end of the quarter.

This resulted in an overall depreciation of approximately 3.7% for the Won against the Dollar during Q2 2025.

Impact on South Korean Businesses & Trade

The Won dollar exchange rate volatility had a tangible impact on South Korean businesses:

Exporters: Companies reliant on exports, such as those in the automotive and electronics sectors, faced increased pressure on profit margins due to the stronger dollar. This made their products more expensive for international buyers.

importers: Businesses importing raw materials and components benefited from the weaker Won, as it reduced their import costs.

Foreign Debt: Companies with significant US Dollar-denominated debt saw their debt burden increase in Won terms.

Inflationary pressures: A weaker Won contributed to inflationary pressures within South Korea, as imported goods became more expensive.

Hedging Strategies for Businesses

Given the ongoing volatility,businesses engaged in foreign exchange risk management employed several hedging strategies:

Forward Contracts: locking in exchange rates for future transactions to mitigate uncertainty.

Currency Options: Providing the right,but not the obligation,to buy or sell currency at a predetermined rate.

Natural Hedging: Matching revenues and expenses in the same currency to reduce exposure.

Diversification: Expanding into multiple markets to reduce reliance on any single currency.

looking Ahead: Q3 2025 Outlook & KRW Forecast

The outlook for the Won/Dollar exchange rate in Q3 2025 remains uncertain.Key factors to watch include:

US federal Reserve Actions: Further interest rate hikes or shifts in monetary policy guidance will significantly influence the Dollar’s strength.

South Korean Economic Performance: Continued monitoring of export data,