South Korean Won Eases from Over 2-Month High

The South Korean won traded around 1,483 per dollar, easing from an over two-month high near 1,475, as Middle East tensions supported demand for the US dollar. US strikes on Iran and threats by Houthi militants to blockade the Red Sea heightened concerns over potential disruptions to key shipping routes and global energy supplies. South Korea’s finance ministry said it would closely monitor developments in the region and maintain measures to ensure stable crude oil and naphtha supplies, as the country remains vulnerable to external energy shocks. Meanwhile, the won remained supported by foreign investor inflows into Korean equities as a rebound in semiconductor stocks improved market sentiment. Government efforts to encourage major exporters to convert foreign currency proceeds and repatriate overseas funds also helped improve dollar liquidity and stabilize the currency.

The South Korean won strengthened to around 1,475 per dollar, reaching its highest level since early May, amid South Korea's efforts to internationalize the won. The government announced measures to improve foreign access to the currency, including allowing overseas financial institutions to borrow won through temporary overdrafts and use won-denominated bonds as collateral, building on the launch of a 24-hour dollar-won trading market. Won trading activity has increased since the extended-hours system began, with foreign participation rising alongside volatility in Korean equities during the semiconductor selloff. The currency also remained firm after the Bank of Korea raised its benchmark interest rate by 25 basis points to 2.75% last week, marking its first rate increase in more than three years. Meanwhile, escalating Middle East tensions lifted oil prices and boosted demand for the safe-haven US dollar amid renewed concerns over inflation and US interest rates.

South Korea announced on Sunday plans to further liberalise its currency market by allowing foreign financial institutions to borrow the Korean won through temporary overdrafts and use won-denominated bonds as collateral in financial transactions. The measures are designed to encourage broader international use of the won and support the government's goal of transforming it from a restricted local currency into a more globally traded one. The reforms build on South Korea's recent efforts to open its foreign exchange market, including the extension of dollar-won trading hours to a 24-hour trading cycle from July 6. By improving access to won liquidity and increasing flexibility in funding and collateral management, the government aims to attract greater foreign participation, deepen domestic financial markets, and enhance the global competitiveness of the Korean won.