Won weakens against dollar near multiyear low despite government intervention

Korea’s won weakened past the 1,470 per dollar mark on Tuesday, extending losses and undoing gains from late-December government intervention, as investors positioned for further currency weakness amid dollar strength and geopolitical risks.

A screen in Hana Bank's trading room in central Seoul shows the dollar-won exchange rate at around 10:20 a.m. on Jan. 13. [NEWS1]

Korea’s won weakened past the 1,470 per dollar mark on Tuesday, extending losses and undoing gains from late-December government intervention, as investors positioned for further currency weakness amid dollar strength and geopolitical risks.

The won-dollar exchange rate stood at 1,473.7 per dollar at 3:30 p.m on Tuesday, up 0.36 percent from the previous session's close at 1,468.4 on Monday. The currency's exchange rate has increased for nine consecutive sessions since Dec. 30, 2025, when it traded at 1,429.8.

Market participants say authorities have failed to rein in expectations of further depreciation. Anticipation of a higher won-dollar exchange rate has fueled demand for dollars, including through purchases of U.S. equities by retail investors.

From the start of January through Friday, Korean individual investors bought a net $1.94 billion worth of U.S. stocks, the largest such outflow since 2011, according to the Korea Securities Depository.

Traders say the government’s intervention late last month briefly raised the won's price but ultimately encouraged more overseas investment. One market participant described the move as having created little more than a short-lived buying window for U.S. assets.

A former senior government official said expectations were driving behavior in the market.

“There is talk that the exchange rate could rise to 1,500 or even 1,600 won per dollar, and if investors believe that, they will naturally want to hold dollars,” the official said. “The key is to reverse those expectations, but it is unclear whether the government has the will to respond.”

An employee holds up dollar bills at Hana Bank's Counterfeit Notes Response Center in Jung District, central Seoul, on Jan. 6. [NEWS1]

Authorities stepped in on Dec. 24, 2025, after the exchange rate climbed into the high 1,480s won per dollar, issuing verbal warnings and selling tens of billions of dollars in the market. The government also announced a temporary capital gains tax exemption for overseas stock investors repatriating funds, but the measures failed to produce a lasting turnaround.

Since then, critics say the response has lacked urgency. At a market monitoring meeting on Thursday led by Finance Minister Koo Yun-cheol, officials pledged to maintain round-the-clock surveillance of currency markets, comments that traders dismissed as boilerplate.

Some analysts argue that weak coordination at the top has undermined policy effectiveness. Koo built his career mainly around budgeting and policy coordination, with limited experience in foreign exchange (FX) markets. Financial Services Commission (FSC) Chairman Lee Eog-weon and senior presidential economic aides Kim Yong-beom and Ha Joon-kyung are also seen as policy specialists rather than FX experts.

Others say Bank of Korea Gov. Rhee Chang-yong cannot avoid scrutiny, given the impact of the interest rate gap between the United States and Korea on the currency.

“Everyone who could be considered part of the FX command center bears responsibility for the high won-dollar exchange rate, yet officials end up blaming retail investors and exporters while producing uncoordinated measures,” an industry official said.

While short-term intervention can ease volatility, economists say sustained currency stability depends on stronger economic fundamentals. Choi Jong-ku, a former chairman of the FSC, warned that rising public debt could amplify pressure on the won.

“If fiscal conditions worsen and the debt-to-GDP ratio rises to around 60 to 70 percent, the exchange rate will become even more unstable,” he said.

Choi added that a narrow window remains to correct course.

“The next one to two years — when the current account remains in surplus and corporate tax revenues hold up on the back of the chip cycle and strong auto exports — may be the last opportunity,” he said. “It is time to pursue fundamental improvements to the economy’s structure.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom. BY JANG WON-SEOK [kim.juyeon2@joongang.co.kr]