The won-dollar exchange rate has surpassed 1,470 won due to the United States' reciprocal tariff imposition and domestic political instability. This is the highest level in 16 years since March 2009 during the financial crisis. Some predict that if the global trade war escalates due to the U.S. tariffs or if political uncertainties increase following the impeachment verdict, the exchange rate could enter the 1,500 won range.
◇ Won-dollar exchange rate surpasses 1,470 won… highest since March 2009
According to the Seoul foreign exchange market on the 3rd, the weekly closing price of the won-dollar exchange rate on the 31st of last month was recorded at 1,472.9 won at 3:30 p.m., marking the highest point of the year. It was the most elevated level since March 13, 2009 (1,483.5 won, based on closing price). Afterward, as the dollar's strength somewhat eased, it fell to 1,466.6 won on the 2nd, but on the 3rd, following U.S. President Donald Trump imposing high tariffs on trading partners, including South Korea (25%), it surged above 1,470 won during trading.
Despite the U.S. reciprocal tariffs, the value of the won is significantly falling compared to major countries. According to the Bank of Korea Economic Statistics System (ECOS), among the 42 countries surveyed by the Bank of Korea, 32 countries saw their currencies rise against the dollar in March. Europe increased by 4.1%, Japan by 0.2%, and even war-torn Russia appreciated by 3.2%. The currency values of Canada (0.8%) and Mexico (0.5%), which are also facing impending tariffs from the U.S., have increased.
In contrast, South Korea's currency fell by 0.6%, following Turkey (-3.8%), Israel (-3.2%), Taiwan (-0.9%), Kazakhstan (-0.9%), Argentina (-0.8%), and Indonesia (-0.7%) with a high depreciation rate. Among the Organization for Economic Cooperation and Development (OECD) member countries, South Korea saw the largest decline in the value of the won following Turkey, where political instability has recently heightened, and Israel, which has engaged in warfare with Palestinian armed factions.
The notable weakness of the won is attributed to the impact of the U.S.'s high tariffs policy on South Korea, a country heavily reliant on exports. The U.S. has imposed a 25% tariff on products imported from China, Canada, and Mexico, as well as on certain items such as steel, aluminum, and automobiles. On the 3rd, it announced that South Korea would also face a 25% reciprocal tariff on its exports to the U.S. In response, countries like China and the European Union (EU) have hinted at countermeasures, accelerating the global trade war.
Political instability is also diminishing the value of the won. Initially, the market expected the impeachment verdict against President Yoon Suk-yeol to be announced in mid-last month, but the Constitutional Court has decided to announce it on the 4th, leaving uncertainties unresolved. The timing of the implementation of the supplementary budget, a crucial factor for a stronger won, has now exceeded the first quarter.
◇ If Korean political uncertainty and global tariff war deepen, could exceed 1,500 won
Some predict that the won-dollar exchange rate could rise to 1,500 won. Capital Economics, a British financial firm, recently published a report lowering South Korea's growth rate forecast from 1.0% to 0.9% due to reduced government expenditure resulting from the political crisis. They expect the won-dollar exchange rate to reach 1,500 won by the end of this year, which would mark the first time since the global financial crisis.
Jeon Gyu-yeon, a researcher at Hana Securities, predicted that if uncertainties both domestically and internationally expand, the upper limit of the won-dollar exchange rate might temporarily rise to around 1,500 won during the second quarter. However, Jeon noted that if the U.S. employment slows down and the possibility of a rate cut at the June Federal Open Market Committee (FOMC) meeting increases, the exchange rate level by the year's end may drop to the 1,400 won range.
Wi Jae-hyun, an economist at NH Futures, revised the annual upper limit of the exchange rate from 1,470 won to 1,500 won. Wi stated, "Domestic political uncertainties may be resolved around early April depending on the impeachment outcome, but the burden on dollar supply and demand may persist due to the Trump administration's tariff policy,” adding that “it seems challenging for the exchange rate to show a trending decline in the short term."
In contrast, some experts believe it will be difficult for the exchange rate to exceed 1,500 won. Kim Chan-hee, a researcher at Shinhan Investment Corp., noted, "The political instability and tariff concerns have already been reflected in the exchange rate,” predicting that unless political uncertainties increase after the Constitutional Court's decision, it will not surpass last year’s high of 1,486 won, which was recorded during the vote on the impeachment motion against Acting President Han Deok-soo on December 27 of last year.
Jo Yong-gu, a researcher at Shinyoung Securities, said, "Given President Trump's personality, it seems likely that even if the U.S. imposes heavy tariffs initially, they will be reduced through negotiations,” projecting that the upper limit for the exchange rate will be around 1,480 won. He added, "Once the political uncertainties are resolved, it may unexpectedly drop to around 1,430 won within 1 to 2 weeks."