The won can't win against the dollar. Experts say the problem starts at home.

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The won can't win against the dollar. Experts say the problem starts at home.

Published: 11 Mar. 2025, 19:00

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

An employee inspects dollar bills at Hana Bank's Counterfeit Notes Response Center in Jung District, central Seoul, on Dec. 19, 2024. [YONHAP]

[NEWS IN FOCUS]

Rising skepticism over the growth outlook of the United States has pushed the dollar down to preelection levels lately, while the yen and the euro have gained ground.

But Korea didn’t get the memo, apparently, as its currency remains stubbornly weak against the greenback. The won-dollar exchange rate still hovers well above its November level — but why?

The answers may lie within Korea's own borders, experts suggest, as waning growth momentum, foreign capital outflow and political turmoil continue to loom large over the country, which has already been grappling with weak demand.

The U.S. dollar index — a measure of its value relative to a basket of six foreign currencies — fell 4.3 percent this year through Monday’s close at 103.84, the lowest since Nov. 5, 2024. As of 5 p.m. in Korea on Tuesday, the index stood at 103.46, down 0.38 points from the previous day’s close.

From January’s peak of 109.96, the greenback retreated 5.6 percent, with a particularly steep decline over the past week or so.

The dollar’s retreat is largely attributed to growing doubts over "U.S. exceptionalism," referring to the country's significant performance compared to the rest of the world.

The restrictive trade policies of U.S. President Donald Trump — marked by bold tariffs slapped on imports from Canada, Mexico and China — as well as tepid economic indicators and heightened geopolitical uncertainty drove the prospects of a slowdown in the U.S. economy, thereby fueling expectations that the Federal Reserve will deliver rate cuts this year.

A weaker dollar and prospects of lower U.S. interest rates, in theory, could buoy the won’s value.

But the Korean currency still remains weak against the greenback — a stark contrast to the recent advances in the yen and the euro.

The Japanese currency, which traded at 151.6 yen against the dollar on Nov. 5, gained ground as of late to around 147 yen per dollar as of Tuesday, boosted by strong economic readings and prospects of further rate hikes by the Bank of Japan. The euro also climbed 3.8 percent over the past week, returning to early-November levels after a steep depreciation through January and February.

Meanwhile, the won-dollar exchange rate stood at 1,458.2 won as of 3:30 p.m. Tuesday, down only 1 percent, or 14.3 won from the end of last year. The rate is still 5.8 percent higher than the 1,378.6 won per dollar quoted on Nov. 5, the day before the U.S. presidential election.

The stronger yen and the persistently weak won, therefore, drove the won-yen exchange rate to 989.85 won per 100 yen on Tuesday, the won’s weakest point since May 2023.

"While the U.S. dollar index remained below the 104-point threshold [on Monday] due to U.S. growth concerns and the eurozone's expansive fiscal policies, the won-dollar exchange rate continues to hover in the mid-1,400 won-per-dollar range, fluctuating in response to Trump's tariff policy,” noted KB Securities analyst Lim Jae-kyun.

Korea’s domestic struggles — both politically and economically — appear to be weighing on its currency, a reflection of heightened concerns about the country slipping into an extended period of low growth.

Park Sang-hyun, an iM Securities economist, attributed the won’s notable weakness to the persistent political risks surrounding President Yoon Suk Yeol’s impeachment proceedings and the weakening fundamentals of the Korean economy.

“The Bank of Korea [BOK] revised its growth projection for the year to 1.5 percent, but questions have been rising over whether that would be achievable,” said Park.

“There is no breakthrough in sight to drive the economy at the moment, especially with China’s recent advances and foreign capital continuing to flow out of Korea,” said Park.

As such, calls for expansive fiscal policies have been growing. BOK Gov. Rhee Chang-yong has repeatedly advocated an expansive fiscal policy, saying that an additional budget between 15 trillion won ($10.3 billion) and 20 trillion won could drive Korea’s growth by an additional 0.2 percentage points to 1.7 percent.

BY SHIN HA-NEE [[email protected]]