Korean authorities on alert as won flirts with 1,500 barrier

Verbal intervention back in focus after overnight slide jolts markets

An electronic board at a Woori Bank dealing room in Seoul on Friday shows the won closing 0.84 percent weaker at 1,493.7 per dollar in onshore trading. The currency later briefly topped 1,500 in after-hours trading. (Yonhap)

South Korean authorities are on heightened alert and signaling possible verbal intervention as a Middle East-driven oil shock keeps pressure on the won, pushing the dollar-won monthly average toward crisis-era levels.

The tougher tone follows the currency’s brief breach of the 1,500-per-dollar mark in Friday overnight trading, renewing concern about the foreign-exchange market.

“Major currencies such as the won, yen and euro are all weakening as the dollar strengthens,” Finance Minister Koo Yun-cheol told reporters in Tokyo on Saturday after meeting his Japanese counterpart. “We may turn to verbal intervention if necessary.”

Koo’s remarks suggest Seoul is prepared to step up its response if foreign-exchange volatility worsens, while leaving the door open to coordination with Tokyo. After the meeting, Koo and Japanese Finance Minister Satsuki Katayama issued a joint statement expressing “grave concern” over the sharp depreciation of the won and yen and said the two governments had discussed steps to address excessive volatility and disorderly market moves, with joint action possible if needed.

The won weakened sharply at the end of the week, breaching the 1,500 threshold in overnight trading, according to Seoul Money Brokerage Services data. After closing the onshore session at 1,493.7 per dollar, 12.5 won weaker than the previous day, it climbed as high as 1,500.9 in after-hours trading before ending the session at 1,497.5 by 2 a.m., its weakest overnight close of the year.

The move has pushed March averages deeper into crisis-era territory. The dollar-won has averaged 1,477 in daytime trading so far this month, the highest monthly average since March 1998, while last week’s average of 1,481 was the highest since the second week of March 2009.

Volatility has also picked up, with the won’s daily trading range widening to 8.4 won in February from 6.6 won in January and 5.3 won in December, according to Bank of Korea data.

The won has also underperformed its peers. Based on market data, it had fallen 3.84 percent against the dollar through Saturday, compared with a 2.92 percent rise in the dollar index, which measures the greenback against a basket of major currencies. The won also lagged the euro, yen, pound and most key Asian currencies.

Foreign outflows is one source of drag, as overseas investors sold about 13 trillion won ($8.7billion) of Kospi shares so far this month.

The main headwind has come from surging oil prices, with the won’s slide closely tracking a renewed jump in crude as the Middle East conflict showed little sign of easing.

After falling below $90 a barrel earlier in the week on hopes of de-escalation, Brent rebounded to settle at $103.14 on Friday, up 11 percent for the week and extending gains after closing above $100 a day earlier for the first time since August 2022.

Korea, which buys around 70 percent of its oil from the Middle East, has been hit especially hard, leaving the won more exposed when regional supply risks intensify and safe-haven demand lifts the dollar.

That vulnerability was on display Monday, when Brent crude briefly surged to $119.50 a barrel and pushed the won to its weakest daytime close of the year at 1,495.5 per dollar.

Market analysts say the won is likely to remain under pressure near the 1,500 level as long as Middle East tensions show little sign of easing and Brent crude stays elevated.

“Dollar-won is likely to remain sticky in the upper 1,400 won range,” said Shinhan Securities analyst Lee Jin-kyung, adding that downside in the pair remains limited as geopolitical risks keep the dollar supported and risk-off sentiment fuels foreign selling of Korean equities.

“We put more weight on that pattern holding until a mediation framework becomes visible at a US-China summit at the end of March.”

KB Securities analyst Oh Jae-young also warned that the won may remain especially vulnerable because Asia has a heavy reliance on energy imports and Middle Eastern supplies.

“Rising oil prices will essentially push dollar-won higher by narrowing Korea’s trade and current-account surpluses,” Oh said, estimating that every $10-a-barrel increase in crude could add about 15 won to the exchange rate, which is already fluctuating in the range of 1,450 to 1,500 won to the dollar.

Meanwhile, Goldman Sachs projected in a Friday report that Brent is likely to average above $100 a barrel this month, before easing to about $85 in April.