The won strengthened past the 1,400-per-dollar level as expectations grew that the U.S. Federal Reserve would hold rates in September, easing short-term pressure on the dollar even as long-term yields climbed sharply in the United States, Japan and other advanced economies. Dollar selling by exporters added to the move.
The won closed at 1,397.7 per dollar in Seoul on the 19th, down 14.1 won from the previous session, and touched an intraday low of 1,396.0. It was the first time the currency traded below 1,400 in about 10 and a half months, since Oct. 2 last year. Simultaneous selling by chipmakers and offshore participants deepened the decline.
Market participants describe the won's gains as a break from conventional patterns. Higher U.S. Treasury yields typically support the dollar and weigh on the won, but the opposite is now unfolding. The U.S. 30-year yield surged to 5.31% on the 18th, its highest since 2007, while the 10-year rose to 4.73%. Japan's 10-year yield also climbed to 2.945%, its highest level since 1996.
The pattern is also read as a sign that the global monetary policy cycle itself is being reshaped. Mohamed El-Erian, chief economic adviser at Allianz, recently cited Bloomberg data showing that two-thirds of 32 swap markets worldwide are pricing in rate increases over the coming year. Markets expect borrowing costs in Japan, Canada, the euro zone and Britain to rise faster than in the United States, and Korea showed the largest increase among the countries surveyed, with more than 100 basis points of hikes priced in. He described this as a turning point away from a Fed-centered rate cycle that has held for the past several years. Such market expectations align with a relatively firm assessment of Korea's fundamentals.
Markets are increasingly reading the recent rise in U.S. rates as a signal of greater risk rather than improved returns. Behind this lies the deterioration of U.S. public finances. The cumulative federal deficit for fiscal 2026 stood at $1.799 trillion as of July, already exceeding the full-year deficit for fiscal 2025 of $1.775 trillion. A widening deficit leads to more bond issuance and heavier interest burdens, a structure that pushes long-term yields higher.
Lee Nam-kang, an economist at Korea Investment Holdings, said the current rise in rates reflects a demand for a higher risk premium rather than improved yields. Because exchange rates are driven by relative real returns between countries rather than absolute rate levels, the dollar may fail to gain strength even as U.S. rates rise, if fiscal and price instability grow at the same time.
Korea's fundamentals also contribute to the won's relative firmness. The United States faces fiscal and inflation risks, Japan carries a fiscal burden and China is grappling with slowing growth, while Korea's growth is seen as relatively solid, anchored by semiconductor exports.
Still, some caution that it is too early to say the trend has taken hold. Cho Yong-gu, a senior researcher at Shinyoung Securities, noted that dollar selling by chipmakers, which has driven the won's rise, has continued for more than a month and is entering a phase of exhaustion. Cho pointed to the possibility that the won would hit a short-term bottom between late August and September before returning to around 1,400, rather than sliding to the mid-1,300s. Choi Kyu-ho, an economist at Korea Investment & Securities, also leaned toward a forecast that the won would fluctuate near 1,400 for the time being before easing to the high 1,300s around the end of the year.
The consensus is that whether the won's strength continues ultimately depends on fundamentals, including semiconductor exports. Economist Lee said risks stemming from Iran have not yet been fully reflected in domestic prices, and that when they show up in the data, part of the recent drop in the exchange rate could be reversed. That means the conditions supporting the won could waver if the chip cycle turns down or energy-driven inflation materializes.
The recent movement of the yen also shows how economic strength shapes currency direction. Market intervention by U.S. and Japanese authorities lifted the yen from 160 to 155 per dollar, but it soon slipped back to the 159 range. Deutsche Bank assessed that currency values are hard to reverse through one-off intervention alone.
