Won Surges as Rate Gap Narrows and Exporters Sell Dollars

The South Korean won has reached its strongest level against the US dollar in 13 months due to a narrowing interest-rate gap between the two countries. The Bank of Korea raised its benchmark interest rate to 3.0% this month, following an increase last month, which reduced the policy-rate gap with the US upper end to 0.75 percentage point.

The won has also benefited from increased dollar selling by semiconductor exporters, including Samsung Electronics and SK Hynix, as they invest in domestic production facilities and need to convert overseas earnings into won. Analyst Kwon Ah-min predicts the won-dollar exchange rate could fall to 1,340-1,350 once foreign-exchange conversion demand from these companies begins.

The medium-term outlook for the won remains favorable, with South Korea's current-account surplus potentially reaching 10% of GDP by next year. This surplus, combined with corporate demand for foreign-exchange conversion, could lead to further gains in the won.