The Korean won-U.S. dollar exchange rate declined, driven by dollar weakness following slower U.S. inflation data and massive net buying of South Korean stocks by foreign investors. However, the currency pared most of its losses late in the session as bargain hunting and importer settlement demand flowed in.
On the 14th, the won-dollar exchange rate closed regular trading (as of 3:30 p.m.) at ₩1,418.3 in Seoul’s foreign exchange market, down ₩1.1 from the previous session. The rate opened at ₩1,416.3, down ₩3.1 from the previous session’s regular trading close of ₩1,419.4, and rose to ₩1,420.5 in early trading before turning lower and falling to ₩1,411.8 at one point in the morning. However, bargain hunting emerged in the afternoon, triggering a sharp rebound into the close.
The direct catalyst for the won’s strength was slowing U.S. inflation data. The U.S. Labor Department reported that the July Producer Price Index (PPI) was flat month-over-month (0.0%), below the market consensus of a 0.2% increase. The year-over-year increase also came in at 4.7%, below the expected 4.9%. Core PPI, which excludes volatile food and energy prices, rose 0.2% month-over-month, also falling short of the 0.3% increase expected.
Following the earlier release of July Consumer Price Index (CPI) data, producer prices also slowed more than expected, further dampening expectations for additional Federal Reserve rate hikes. The Dollar Index (DXY), which measures the greenback against six major currencies, stood at 99.84 as of 3:34 p.m., down from 99.96 in the previous session.
The revival of risk appetite amid easing rate-hike concerns also exerted downward pressure on the exchange rate. Overnight on Wall Street, the Dow Jones Industrial Average rose 0.13%, the S&P 500 gained 0.65%, and the Nasdaq Composite advanced 0.81%.
Strength in South Korea’s stock market and foreign capital inflows also supported the won’s appreciation. The KOSPI closed up 164.60 points, or 2.42%, at 6,977.94, with foreign investors net buying ₩3.04 trillion (approximately $2.2 billion) worth of shares on the main KOSPI market. Foreigners extended their net buying streak on the KOSPI to four consecutive sessions, and the index briefly reclaimed the 7,000 level, rising to 7,010.86 intraday. Custodial dollar selling tied to foreign stock purchases contributed to the exchange rate’s decline.
International oil prices also fell amid easing tensions in the Middle East. West Texas Intermediate (WTI) crude dropped 2.43% from the previous session to $81.25 per barrel. Dollar-selling negotiation volumes from exporters, particularly semiconductor companies, also supported the won’s strength, according to analysts.
However, as the exchange rate fell to the low ₩1,410 range, real dollar demand emerged from importers’ settlement needs and residents’ currency conversion for overseas stock investments, providing support at the lower end. The continued weakness of the Japanese yen, with the dollar-yen rate moving in the mid-¥159 range, also weighed on the won.
The won-dollar exchange rate has fallen from above ₩1,550 on the 1st of last month to the ₩1,410 range in about a month. It appears to be forming a new trading range around ₩1,420, the level seen at the start of the year.
Moon Jung-hee, an economist at KB Kookmin Bank, said, “Since 2022, whenever the exchange rate has fallen sharply after a rapid surge, the 100-week moving average has acted as a key support level.” She added, “The 100-week moving average currently stands at ₩1,436, while the 200-week moving average is at ₩1,382.” She continued, “There has been no instance since 2022 of the exchange rate falling to the 200-week moving average,” and forecast that “it is highly likely to fluctuate within the ₩1,382–₩1,436 range for the time being.”
