The won-dollar exchange rate has structurally risen to a higher level, making it likely that the high exchange rate trend above the 1,400-won range will continue for the time being, according to an analysis. It also recommended that financial firms examine the impact of a prolonged high exchange rate on their profitability and soundness.
According to the Korea Institute of Finance on Tuesday, Senior Research Fellow Park Hae-sik diagnosed that the won-dollar exchange rate has structurally climbed to the 1,400-won range since 2024, in a report titled "Assessment of the Possibility of a Structural Upward Shift in the Won-Dollar Exchange Rate." The report was prepared as of April this year, when the average weekly-trading closing price of the won-dollar exchange rate was 1,485.0 won.
According to the report, the won-dollar exchange rate continued a gradual upward trend after the mid-2010s and moved mainly in the 1,200-1,300-won range through the first half of 2024. However, since the second half of 2024, excluding periods when it temporarily fell to the 1,300-won range, it has mostly fluctuated in the 1,400-1,500-won range.
Analyzing exchange rate movements from January 2015 to April this year, Park explained that three structural breaks occurred—in April 2019, April 2022, and March 2024—raising the average exchange rate in stages to 1,168.7 won, 1,312.4 won, and 1,408.2 won, respectively.
He analyzed that the background to this structural change was a combination of increased dollar demand from the expansion of domestic investors' overseas securities investments and global dollar strength.
The report projected that upward pressure on the exchange rate remains high and that this trend will continue until February next year. Even if no additional external shocks occur, the exchange rate is more likely to remain at the current level than to quickly return to past levels. Park stressed that financial firms need to closely examine and prepare for the impact that a prolonged high exchange rate will have on profitability and capital adequacy.
Meanwhile, the won-dollar exchange rate has continued its upward trend even after the report was prepared. As of the previous day, it had exceeded the 1,500-won range for 34 consecutive trading days based on the weekly-trading closing price, and on the 1st of this month it surged to as high as 1,559.2 won intraday.
