Won-dollar exchange rate rises further in overnight trading to 1531

The South Korean won (KRW) continued its downward trend against the U.S. dollar, experiencing further depreciation in overnight trading. The exchange rate closed at 1531.00 won per dollar in early trading on June 20, marking a 3.90 won increase from the previous day's closing rate on the Seoul foreign exchange market.

Earlier in the session, the won had briefly strengthened to 1527.70 against the dollar, buoyed by news of a potential ceasefire agreement between Israel and Lebanon's Hezbollah. However, this relief was short-lived as the dollar index (DXY), which measures the dollar's value against six major currencies, began to rise, pushing the won back into the 1530 won range.

The won has remained stubbornly high, trading above 1500 won per dollar for over a month since mid-May. Even on June 19, the rate only saw a marginal decrease of 0.1 won to 1527.0 won, which market watchers attributed to interventions by South Korea's foreign exchange authorities.

The persistent weakness of the won, despite a declared end to hostilities between the U.S. and Iran, is largely due to the U.S. Federal Reserve's firm signals of potential future interest rate hikes. These signals are driven by concerns over escalating inflation in the United States. South Korea's current benchmark interest rate of 2.50% is significantly lower than the upper bound of the U.S. rate, creating a fundamental condition for the won's depreciation.

Furthermore, lingering geopolitical tensions surrounding the Strait of Hormuz, even after the U.S.-Iran 'end of war' declaration, remain a significant obstacle to the won's recovery. Financial markets perceive the agreement between the two nations as merely a Memorandum of Understanding (MOU), indicating that risks have not been fully resolved. The slow pace of recovery for Iran's oil production facilities, which were damaged during the conflict, is also cited as a factor contributing to instability in the foreign exchange market, despite a general decline in international oil prices.