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Korean won surpasses 1,400 against greenback amid stock sell-off, resurgent dollar

Published: 01 Aug. 2025, 19:18 Updated: 01 Aug. 2025, 21:03

U.S. dollar banknotes are seen in this illustration taken May 4, 2025. [REUTERS/YONHAP]

The Korean won traded above the 1,400 mark against the U.S. dollar for the first time in two and a half months on Friday, weighed down by a foreign stock sell-off and a resurgent dollar.

According to the Seoul foreign exchange market on the same day, the won closed at 1,401.4 per dollar, up 14.4 won from the previous close of 1,387. It was the first time since May 14, when the won closed at 1,420, that the local currency surpassed the 1,400 mark against the dollar. Compared to its recent level of 1,350 at the end of June, the won has risen by more than 50 won in a month.

Despite Korea’s relatively strong showing in tariff negotiations with the United States, the won still rose due to heavy selling by foreign and institutional investors, which also sent the Kospi plunging nearly 4 percent. When foreign investors sell Korean stocks, they convert the proceeds into dollars, driving up the won's exchange rate against the dollar.

According to the Korea Exchange, foreign investors had been net buyers of Kospi stocks for seven consecutive sessions since July 23, purchasing a total of 3.61 trillion won ($2.57 billion).

But on Aug. 1, they switched to net sellers, offloading around 652.4 billion won. The reversal came after the government’s tax reform proposal on Thursday dampened market sentiment. The top marginal tax rate on separated dividend income, including local income tax, was set at 38.5 percent, higher than market expectations, while the threshold for major shareholders subject to capital gains tax was tightened to 1 billion won.

The strengthening dollar also added downward pressure on the won. According to the Wall Street Journal, the U.S. dollar index — which tracks the greenback against six major currencies, including the euro and yen — climbed above 100 on July 31 for the first time since May 29, which recorded 100.54.

A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 3,119.41 points on Aug. 1, down 126.03 points, or 3.88 percent, from the previous trading session. [YONHAP]

The stronger dollar reflected market sentiment that recent global tariff negotiations have favored the United States, along with expectations that the Federal Reserve will keep interest rates high for longer.

According to CME FedWatch, as of 4 p.m. on Aug. 1 in Seoul, the probability of the Fed holding rates steady in September jumped to 60.8 percent, up 25.5 percentage points from a week earlier.

“Although the overheated dollar is expected to cool as tariff negotiations between the United States and major economies wrap up, the won could continue to face downward pressure from foreign selling driven by weak investor sentiment,” said Baek Seok-hyun, an economist at Shinhan Bank.

“The government’s pledge to usher in the ‘Kospi 5000 era’ is being undercut by inconsistent policies,” Park Sang-hyun, a researcher at iM Securities, added, noting that persistent doubts over Korea’s market appeal — known as the Korea Discount — could continue to weigh on the won.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY YEOM JI-HYEON [[email protected]]