Korean currency hits two-year low against U.S. dollar

The weakening won is becoming a threat to the Korean economy as the value hit 1,265 won against the U.S. dollar on Wednesday. With the U.S. economy taking measures to tame inflation, the situation in Ukraine and China’s lockdown, fears of a global slowdown are pressing down on the financial market.

The won to dollar exchange rate on Wednesday closed at 1,265.2 won, 14.4 won higher than the previous day, at the Seoul Foreign Exchange market, marking a record high for three consecutive days. It is the first time the won reached 1,260 won per dollar since March 23, 2020 (at 1,266.5 won) at the onset of the COVID-19 pandemic.

The won to dollar exchange rate even peaked to 1,266.0 won per dollar during market hours. Up until last year, the exchange rate was defended at 1,240 won but rose to 26.1 won in this week alone.

The weakness of the won is caused by growing fears of an economic slowdown in China as lockdowns in Shanghai have extended to Beijing prompting growing demand for the U.S. dollar as safe assets. This also impacted KOSPI that closed at 1.1% lower at 2,639.06.

“The U.S. dollar is expected to remain strong as the Fed has warned of intensive money tightening measures,” said Professor Ahn Dong-hyun of Economics at Seoul National University. “Won to dollar rates may exceed 1,300 won in the first half of the year.”


Min-Woo Park minwoo@donga.com