Won bucks strong dollar, weak yen as chip dollars flood into Korea

The won is strengthening despite a firmer dollar and a weakening yen. A two-month rally has taken the dollar-won rate from the 1,560s in June into the 1,360s.

The won strengthened 3.9 won from Friday to close at 1,368.6 against the dollar on Monday. It was the currency's strongest 3:30 p.m. close since July 24, 2025, when it finished at 1,367.2.

A surge in dollar supply from the semiconductor sector, a large current account surplus and a narrower interest rate gap with the United States are behind the move. SK hynix's $26.5 billion offering of American depositary receipts, or ADRs, on July 10 has added an unusually large source of dollars on its own.

Federal Reserve Chair Kevin Warsh sharpened the contrast on Friday with a hawkish keynote at the Jackson Hole symposium, delivered hours after Seoul had closed for the week. The dollar rose on his remarks and held near a two-week high on Monday, while the yen slipped back through 160 per dollar despite a rare joint intervention by U.S. and Japanese authorities earlier in August.

Seoul opened rattled on Monday, and the dollar-won rate climbed to about 1,380 before reversing through the session.

Warsh called the Fed's 2 percent inflation objective, as measured by the personal consumption expenditures price index, "a firm, fixed target." Summer readings on that index and on consumer prices came in better than expected, he said, but "do not tell me that underlying trends have meaningfully improved." Markets read the speech as raising the odds of another U.S. rate increase at the Sept. 15-16 policy meeting.

SK hynix switched part of the proceeds into won for domestic investment.

"Spot conversions flowed in from July through September after forward sales ahead of the offering, and dollar selling by exporters and forward sales by shipbuilders joined in," LS Securities said in a report.

Chip exporters have also had more dollars to sell, converting export receipts into won for capital spending and tax payments.

"Expectations are growing that exporters will continue selling dollars because the government and foreign exchange authorities have shown a strong commitment to stabilizing the currency," a foreign exchange market source said.

Foreign investors are putting less pressure on the won than they did earlier this year. KB Securities put their net selling of Korean shares at around 40 trillion won ($29.2 billion) in each of May and June, but the figure fell to an average of about 10 trillion won a month in July and August. If monthly selling stays below $10 billion, the brokerage said, a current account surplus running above $30 billion a month can absorb much of it.

The Bank of Korea (BOK) has added another source of support. The central bank raised its base rate by a quarter point to 3 percent on Thursday, a second consecutive increase. It also lifted its growth forecast for this year to 3.3 percent from 2.6 percent and its 2027 forecast to 2.9 percent from 2.1 percent.

A semiconductor boom is driving exports and investment, the BOK said. Companies need more won for investment and shareholder returns, which gives them further reason to convert dollar earnings.

The Fed holds its policy rate at 3.50 to 3.75 percent. The gap between the bottom of that range and Korea's base rate has narrowed to half a percentage point, from more than 2 percentage points at its widest.

"The dollar-won rate has stabilized significantly, but it is still high compared with past years," BOK Gov. Shin Hyun-song said at a press conference after Thursday's decision. "I think there is room for the won to strengthen further through proactive monetary policy."

Shin said at Jackson Hole the following day that the won had developed some immunity to external shocks.

Shinyoung Securities cautioned against reading the rally as the return of a structurally strong won. The dollar-won rate fell 11.5 percent from 1,559 in June to around 1,380 in late August, the brokerage said, but sits about 21 percent above the 2016 to 2019 average of 1,139. On that reading, the won is normalizing from an unusually weak level rather than turning strong.

September will test the shift. The dollar supply tied to the SK hynix proceeds could fade, while a cheaper dollar could encourage Korean retail investors to buy more overseas stocks. Foreign investors could also take profits on Korean shares, and those sales would create fresh demand for dollars.

"We are keeping open the possibility that the dollar-won rate could fall to around 1,350 before the FOMC [Federal Open Market Committee] meeting," said Park Hyung-jung, an economist at Woori Bank. "But if the Fed raises rates in September and signals further increases, the rate could rise again." He put a rebound into the 1,400s within reach even without a return to the 1,500s.

A stronger won could also reinforce the BOK's tightening cycle, Park said. Large conversions of semiconductor dollars into won would add domestic liquidity and increase the central bank's need to absorb it.

"If BOK tightening ends up stronger than expected, the Korea-U.S. interest rate gap could narrow further and support the won," Park said.

BY KIM WON [[email protected]]