BOK governor skips central bankers' summit as won on 1,500-brink

The dollar-won exchange rate briefly surged past the psychologically important 1,500-won level in overnight trading amid the fallout from a military clash between the United States and Iran, heightening jitters in Korea’s foreign exchange market.

An aerial view of the Iranian shores and the island of Qeshm in the Strait of Hormuz, Dec. 10, 2023. [REUTERS/YONHAP]

The dollar-won exchange rate briefly surged past the psychologically important 1,500-won level in overnight trading amid the fallout from a military clash between the United States and Iran, heightening jitters in Korea’s foreign exchange market.

As the currency’s sharp move fueled broader market anxiety, Bank of Korea (BOK) Gov. Rhee Chang-yong postponed a planned overseas trip and moved to coordinate an emergency response.

On Wednesday, the won opened Seoul trading at 1,479 won per U.S. dollar, weakening 12.9 won from the previous session’s close, extending overnight gains in the dollar. According to the Seoul Money Brokerage Services, the dollar-won rate climbed as high as 1,506.5 won during overnight trading, from 3:30 p.m. Tuesday to 2 a.m. Wednesday.

It was the first time the dollar-won exchange rate had topped 1,500 won intraday since March 2009, about 17 years ago. A rate in the 1,500s was last seen during major financial shocks such as the 1997 Asian financial crisis and the 2008 financial crisis.

The latest spike was attributed to mounting concerns over energy supplies following the recent U.S.-Israeli airstrikes on Iran. Tehran has since vowed to attack any ship trying to pass through the Strait of Hormuz, intensifying fears of disruptions to global oil shipments. Roughly 20 percent of the world’s oil cargo volume passes through the strait.

Concerns have also grown over potential disruptions in production among nearby oil-producing countries. Iraqi outlet Shafaq News reported that crude production and pipeline transport at the Rumaila oil field — the world’s second largest — has been suspended. Rumaila produces about 1.4 million barrels a day, raising the prospect that any sustained supply disruption could add further upward pressure on global oil prices.

Iraqi authorities have also warned that if tanker traffic through the Strait of Hormuz is halted, the country may have to cut output by more than 3 million barrels per day.

A monitor shows the Kospi and the foreign exchange rate between U.S. dollar and Korean won at the Korea Exchange in western Seoul on March 4. [AP/YONHAP]

Supply worries quickly fed into oil prices. On the New York Mercantile Exchange, West Texas Intermediate crude futures jumped more than 9 percent intraday to around $74 a barrel. In global currency markets, demand for safe-haven assets boosted the dollar, with the dollar index rising to 99.65 from the upper 98 range the previous day.

The oil surge also stoked short-term inflation concerns, weakening expectations for rate cuts by the U.S. Federal Reserve. As those expectations faded, the dollar strengthened further, adding pressure on the won, analysts said.

A prolonged disruption in oil supplies could also weigh on the global economy. JPMorgan estimated that if a supply drop of 1 million barrels per day persists, global GDP could fall by about 0.3 percentage points on a quarterly basis.

Park Sang-hyun, a researcher at iM Securities, said financial markets in some Asian and European countries, including Korea and Germany, have been heavily affected by developments involving Iran, adding that surging oil and natural gas prices are increasing market volatility.

In the near term, some analysts see the won trading against the dollar in the 1,480 range. Min Kyung-won, an analyst at Woori Bank, said the won is likely to remain under pressure amid a global risk-off mood and dollar strength, hovering around the low 1,480s against the dollar.

The local currency depreciated 10.1 won from the previous session to trade at 1,476.20 won against the greenback at 3:30 p.m. on Wednesday.

A dealer walks past near a screen showing the foreign exchange rate between U.S. dollar and Korean won at a dealing room of Hana Bank in central Seoul on March 4. [AP/YONHAP]

The central bank has also stepped up monitoring. Gov. Rhee had planned to travel to Basel, Switzerland, for a meeting of central bank governors at the Bank for International Settlements and related International Monetary Fund events, but postponed the trip as currency volatility increased. On Wednesday, he chaired a task force meeting on the Iran war to review drivers behind the won’s depression and currency moves in major economies.

The BOK said that, unlike past crisis periods, dollar liquidity remains ample and Korea’s external borrowing spreads and credit default swap premiums — a gauge of sovereign default risk — have stayed stable. It added that volatility could rise depending on developments in the Iran conflict and said it would closely monitor whether exchange rates and interest rates diverge excessively from domestic fundamentals, coordinating with the government if necessary.

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 KIM WON [shin.minhee@joongang.co.kr]