Won Dives Below 1,400 Per Dollar for First Time in 10 Months

The South Korean won gained momentum on August 19, breaking below the 1,400-per-dollar mark for the first time in 10.5 months. The dollar dipped to 1,399.0 won against the Korean currency at 12:02 p.m. in Seoul, a level not seen since October 2 last year. This move follows weaker-than-expected U.S. inflation data and declining retail sales, which has led to speculation that the Federal Reserve may ease monetary policy further.

The combined effects of softer inflation, consumption, and employment indicators have put downward pressure on the dollar and supported the won's gains. Foreign investors' net selling of Korean stocks and overseas investment in the first half of the year increased demand for dollars, but more recently exporters have been selling dollars and converting proceeds into won, creating an oversupply of dollars in the market.

Shifting expectations for U.S. monetary policy have also contributed to the won's gains. Interest-rate futures markets are pricing in a 31% probability of a 25-basis-point rate hike at the Fed's September Federal Open Market Committee meeting. As expectations for higher U.S. rates have weakened, gains in Treasury yields and the dollar have moderated, allowing the won and other major currencies to strengthen.