South Korean won strengthens as dollar exchange rate hits 1,300 won level

The South Korean won has strengthened significantly against the US dollar, with the exchange rate dropping into the 1,300 won range for the first time in approximately 10 to 11 months. This decline was driven by weakening US economic indicators, including lower-than-expected consumer and producer price indices and retail sales, which have reduced expectations for further interest rate hikes by the Federal Reserve.

In addition to macroeconomic factors, domestic supply of dollars has increased as South Korean exporters, particularly in the semiconductor sector, have been selling dollars to convert them into won. This influx of dollar supply, combined with a weakening US dollar index, has exerted downward pressure on the exchange rate.

As the rate has fallen, there has been a notable surge in dollar deposits at major South Korean banks. The balance of dollar deposits at five major commercial banks increased by approximately $7 billion in the first half of August alone. While some retail investors in US equities have faced currency translation losses due to the rapid decline, many are using the lower exchange rate to accumulate more dollars in anticipation of a future rebound.