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The exchange rate between the South Korean won (KRW) and the United States dollar (USD) has experienced notable fluctuations over the past several months. These movements have been influenced by a combination of global economic trends, domestic political events, and monetary policies from both countries. This report provides an analysis of the KRW/USD exchange rate dynamics, examining the key factors that have contributed to its recent volatility.

Recent Exchange Rate Trends

As of June 3, 2025, the KRW/USD exchange rate stands at approximately 1,465.95 KRW per USD. (uk.investing.com) This represents a significant depreciation of the won compared to previous periods. For instance, in December 2023, the exchange rate averaged around 1,301.73 KRW per USD, with the lowest rate recorded at 1,286.18 and the highest at 1,317.66 during that month. (exchangerates.org.uk)

The downward trend continued into early 2024, with the won reaching a 15-year low in December 2024, trading at 1,448.9 KRW per USD. (reuters.com) This depreciation has been attributed to several interrelated factors, including the U.S. Federal Reserve's monetary policy stance and domestic political uncertainties in South Korea.

Factors Influencing the KRW/USD Exchange Rate

U.S. Federal Reserve's Monetary Policy

The U.S. Federal Reserve's decisions regarding interest rates have a profound impact on global currency markets. In December 2024, the Fed implemented an interest rate cut but signaled a cautious approach to further reductions, emphasizing the need for more progress in controlling inflation. (reuters.com) This hawkish stance strengthened the U.S. dollar, making it more attractive to investors seeking higher returns, thereby exerting downward pressure on the won.

Domestic Political Uncertainty

Political events within South Korea have also played a role in the won's depreciation. In early December 2024, President Yoon Suk Yeol's brief imposition of martial law led to increased political instability. This move raised concerns among investors about the country's political stability, prompting capital outflows and further weakening the won. (reuters.com)

Economic Growth Concerns

The Bank of Korea has highlighted downside risks to economic growth forecasts for 2024 and 2025, partly due to the negative economic impact of the December 2024 martial law order. (reuters.com) Slower economic growth can deter foreign investment and reduce demand for the won, contributing to its depreciation against the dollar.

Government and Central Bank Responses

In response to the won's rapid depreciation, South Korean authorities have taken several measures to stabilize the currency and financial markets:

• Market Stabilization Measures: The government and the Bank of Korea have expressed readiness to implement swift and bold measures to stabilize financial markets if volatility is deemed excessive. (reuters.com)

• Foreign Exchange Transactions: The Financial Services Commission has urged local banks to manage foreign exchange transactions and loans flexibly to ease pressure on the currency. (reuters.com)

• Foreign Exchange Swap Line: The Bank of Korea expanded its foreign exchange swap line with the National Pension Service to absorb dollar demand stemming from increased overseas investments by the pension fund. (reuters.com)

Historical Context

To put the current exchange rate into perspective, it's useful to consider historical data. The won reached its all-time low against the dollar in January 1998, trading at 1,707.30 KRW per USD during the Asian financial crisis. (ceicdata.com) While the current rate of approximately 1,465.95 KRW per USD is not as severe, it is the weakest the won has been since March 2009. (reuters.com)

Implications for the Future

The trajectory of the KRW/USD exchange rate will depend on several factors:

• U.S. Monetary Policy: Future actions by the Federal Reserve, particularly regarding interest rates, will continue to influence the strength of the dollar and, consequently, the KRW/USD exchange rate.

• Domestic Political Stability: Maintaining political stability is crucial for investor confidence. Any further political turmoil could lead to additional depreciation of the won.

• Economic Performance: South Korea's economic growth and trade balance will play significant roles. Strong economic performance could attract foreign investment, bolstering the won.

• Government Interventions: The effectiveness of the government's measures to stabilize the currency will be critical. Continued interventions may help mitigate excessive volatility.

Conclusion

The South Korean won has experienced significant depreciation against the U.S. dollar over the past several months, influenced by U.S. monetary policy, domestic political events, and economic growth concerns. While the government and central bank have taken steps to stabilize the currency, the future direction of the KRW/USD exchange rate will depend on a complex interplay of international and domestic factors. Stakeholders should closely monitor these developments to make informed decisions in the evolving economic landscape.