KRW poised for weakest annual average against U.S. dollar

(Yonhap)

The annual average exchange rate of the South Korean won against the U.S. dollar is expected to fall into the 1,420 won range this year, weaker than levels seen during the Asian financial crisis.

According to Seoul Money Brokerage Services Ltd. on Sunday, the won closed at 1,440.3 per dollar on Friday. The currency had weakened to as low as 1,483.6 on Tuesday, prompting the government to roll out a series of foreign exchange stabilization measures.

Those moves helped trigger a sharp rebound, with the won rising to 1,449.8 on Wednesday and moving further into the 1,440 range the following day.

Observers attributed the recovery to the National Pension Service’s activation of strategic currency hedging and policy measures offering tax incentives for long-term domestic equity investment.

On Wednesday, the NPS decided to operate strategic hedging on a discretionary basis without committee approval, which market participants say helped fuel the won’s rebound.

However, the currency’s annual average is already approaching a record low. As of Friday, the year-to-date average closing rate stood at 1,422.03 per dollar, compared with an annual average of 1,394.9 won in 1998, immediately after the foreign exchange crisis, marking the weakest level on record.

The won’s annual average has been on a clear downward trend in recent years, falling from 1,291.95 in 2022 to 1,305.41 in 2023 and then to 1,363.98 last year.

This year, monthly closing rates have been in the 1,400 range for all months except May through August, underscoring signs that won weakness is becoming entrenched.

Markets see limited near-term downside given authorities’ strong resolve to manage year-end closing levels.

However, questions remain over whether stability driven by official intervention can be sustained into next year. While government measures have eased short-term volatility, they have not addressed the underlying foreign exchange supply-demand imbalance weighing on the currency.

With overseas investment by individuals and companies continuing to rise, many analysts expect the 1,400 won range to become the new normal.