Won Rallies as Exporters Repatriate Funds and BOK Hikes Interest Rate

The Korean won has experienced a significant rebound in recent weeks, rising to become the best-performing major currency against the dollar this month. The won gained 6.24% against the dollar from July 1 through Friday, outperforming other currencies such as the Australian dollar and Russian ruble.

The rally is attributed to exporter dollar sales, including a $26.5 billion repatriation by SK hynix after its Nasdaq listing earlier this month. The Bank of Korea's first policy rate increase in three and a half years has also provided support for the won, with markets expecting one or two more hikes by year-end.

The inflation-adjusted value of the won had fallen to its lowest level in over 17 years in June, but it has since recovered. The real effective exchange rate stood at 82.99 in June, making it the second-lowest among the 64 economies covered by the Bank for International Settlements.

Market participants expect the won-dollar exchange rate to continue falling to the mid-to-upper 1,400 range, driven by further dollar selling from exporters and an inflow of funds from SK hynix's ADR issuance. The weakening correlation between the won and Japanese yen is also contributing to the won's recovery.