The won-dollar exchange rate has rebounded back to the 1,380 won level, but South Korean foreign exchange experts point to the low-to-mid 1,300 won range per dollar as the so-called “Goldilocks exchange rate” that can stabilize both growth and inflation in South Korea. Their judgment: in a high-oil-price environment, the effect of a stronger won in lowering import prices and energy costs and lifting household real purchasing power outweighs the weakening of export price competitiveness.
A snap survey of 20 FX experts conducted by Seoul Economic Daily immediately after the back-to-back rate hikes in the U.S. and Japan found that seven respondents—the largest group—identified 1,300–1,350 won per dollar as the appropriate exchange rate. Four respondents each selected the 1,350–1,400 won and 1,400–1,450 won ranges, while three chose 1,250–1,300 won and one chose 1,200–1,250 won. In total, 11 experts—more than half—saw the 1,300 won range as appropriate.
Positive assessments also prevailed on the impact of a stronger won on the South Korean economy. Of the 20 respondents, 14 (70%) answered “positive,” while only one said “negative.” The remaining five rated the impact as “neutral.”
Price stability and improved household purchasing power were cited as the biggest benefits of a stronger won. Kang Hyun-joo, senior research fellow at the Korea Capital Market Institute, said, “With international oil prices high, won appreciation has the effect of easing upward pressure on import prices and boosting household real purchasing power.” Chung Yong-taek, head of research at IBK Securities, also explained, “A high exchange rate worsens polarization, whereas a falling exchange rate has the effect of mitigating it.” Experts added that with the competitiveness of key export items such as semiconductors remaining solid, the export burden from a stronger won is more limited than in the past.
That said, some pointed out that if the won strengthens too rapidly, it could burden exporters’ price competitiveness and FX risk management. Park Hyung-jung, economist at Woori Bank, said, “In the short term, 1,380–1,420 won is appropriate; in the medium-to-long term, the late 1,200s to early 1,300s is appropriate.” A commercial bank FX dealer noted, “Below 1,300 won, exporters’ price competitiveness could be somewhat eroded.”
Experts identified the recent sharp volatility, rather than the exchange rate level itself, as the bigger risk factor. With the won-dollar rate having plunged from the mid-1,500s to the low 1,300s and then rebounding, uncertainty is growing for corporate currency hedging and investment decisions.
This year, the won-dollar exchange rate has been on a roller-coaster ride. Starting the first trading day of the year at 1,441.8 won, the rate surged to a yearly high of 1,555.8 won on July 2 before falling to a yearly low of 1,336.1 won on September 9. It then began rebounding as Middle East tensions escalated again and the U.S. raised rates for the first time in three years and two months, closing at 1,383.3 won on the 18th. That marks a rise of 47.2 won in just seven trading days from the yearly low. The gap between the yearly high and low reached 219.7 won.
U.S. 10-Year Yield at 5.5% Is the ‘Red Line’
Another key variable in global financial markets is the U.S. 10-year Treasury yield. The 10-year yield closed at 5.02% on the 16th, surpassing 5% on a closing basis for the first time since 2007. That is up 0.85 percentage points from 4.17% at the start of the year.
When asked in the survey “At what level would the U.S. 10-year Treasury yield offset U.S. growth momentum?”, responses clustered in the 5–5.5% range. Six experts cited 5.0–5.2%, while seven suggested 5.25–5.5%. Chung said, “Even 5% is already a dangerous level for the U.S. economy,” adding, “If rates rise further, the burden on consumption and investment could grow.” The analysis suggests that from around 5.5%, the shock to the economy and fiscal conditions could intensify.
Rising U.S. Treasury yields raise funding costs for households, businesses, and the government, and could also constrain investment in industries requiring large-scale upfront capital, such as artificial intelligence (AI) and data centers. The U.S. 30-year fixed mortgage rate also recently climbed to 6.76%, the highest level in over a year. If global capital shifts to the U.S., where rate attractiveness has increased, emerging-market assets could face greater capital outflow pressure and their currencies could weaken. For South Korea, if this leads to won weakness, import price burdens could rise again, diluting the inflation-stabilizing effect of a stronger won.
The Bank of Korea also noted in its August Monetary Policy Board minutes that if hyperscaler funding costs rise due to higher U.S. Treasury yields, AI investment could contract and weigh on South Korean semiconductor exports.
However, some point out that the absolute level of U.S. Treasury yields alone is insufficient to judge the economic shock. This is because the impact on the real economy can differ depending on whether the rate rise reflects higher real rates from an economic recovery or an expanded term premium from fiscal concerns. Kang said, “Rather than the number itself—5% or 5.25%—what determines the impact on the real economy is whether the rate rise stems from improved real rates or from an expanded term premium due to fiscal concerns.”
October Rate Hold Is the Dominant Forecast
Meanwhile, on the Bank of Korea Monetary Policy Board’s October base rate decision, expectations of a hold prevailed. Of the 20 respondents, 15 (75%) forecast a rate hold, while only four expected a hike. Experts agreed that if the exchange rate stabilizes in the low-to-mid 1,300 won range, a favorable environment for inflation and domestic demand could emerge, but that rising U.S. Treasury yields and tighter global financial conditions are the biggest variables that could derail the won’s strengthening trend.
Experts’ views on the appropriate exchange rate range diverged somewhat depending on the time horizon. While some saw 1,380–1,420 won as appropriate in the short term, others projected room for the won to strengthen further to the late 1,200s to early 1,300s over the medium-to-long term. However, there was consensus among experts that “speed control” is needed, given that below the 1,300 won level, exporters’ price competitiveness could be undermined.
