South Korean Won Weakens Further

The South Korean won weakened to around 1,353 per dollar, retreating from a near two-year high amid rising expectations for tighter Federal Reserve policy. Markets were pricing in a roughly 92% chance of a 25-basis-point rate hike this week, while the 10-year Treasury yield remained elevated near 5%, keeping the dollar firm. Higher crude prices also added to inflation risks, with oil climbing above $100 a barrel amid escalating Middle East tensions and raising concerns over higher energy import costs for South Korea. A vessel was recently struck in the Strait of Hormuz, while Saudi Arabia kept its East-West crude pipeline shut following drone attacks, threatening further disruptions to regional oil supplies. Foreign investors also sold a net 3.2 trillion won of local stocks, adding to the won’s decline. Meanwhile, persistent semiconductor exporters’ dollar sales helped limit the won’s losses.

The South Korean won traded around 1,347 per dollar, easing slightly but remaining near a two-year high, as escalating Middle East tensions pushed oil prices above $100 a barrel and lifted demand for the dollar. A vessel was struck in the Strait of Hormuz, while Saudi Arabia shut its East-West crude pipeline following drone attacks, raising concerns over further supply disruptions and higher energy import costs. Additionally, the US 10-year Treasury yield remained elevated as markets increased bets on a Fed rate hike this week, keeping the dollar firm. At the same time, South Korea’s inflation remained above the BOK’s target, with consumer prices rising 3.1% year-on-year in August, while the central bank indicated that the timing and pace of further rate hikes will depend on domestic and external conditions. Meanwhile, exports surged 82.9% year-on-year in the first 10 days of September, with semiconductor shipments jumping 270%, highlighting the strength of Korea’s external trade.

The South Korean won traded around 1,339 per dollar, approaching its strongest level since early October 2024, as strong export earnings fueled exporter dollar selling. South Korea’s cumulative exports reached a record $709.4 billion so far this year, already surpassing the 2025 annual record, with semiconductor exports rising 169.6% in January-August amid strong demand for AI-related chips. The won has strengthened by roughly 250 won from its July low, underscoring its sharp recovery. Meanwhile, escalating US-Iran tensions pushed Brent crude above $100 a barrel, raising concerns over inflation and increasing dollar demand from importers. The US 10-year Treasury yield also climbed to its highest level since November 2023, while markets priced in about a 60% probability of a September Federal Reserve rate hike, limiting the won's gains. Separately, investors awaited US producer-price data and consumer inflation data this week for further clues on the Fed’s policy path.