South Korean Won Hits Three-Week Low

The South Korean won weakened to around 1,380 per dollar, hitting a three-week low as the Fed’s rate hike and hawkish guidance lifted the dollar. The Fed raised its policy rate by 25bp to 3.75%-4.00%, its first increase since 2023, and indicated another hike could come later this year, leaving the US-Korea rate gap as wide as 1 percentage point. The wider US-Korea rate differential kept attention on the relative yield advantage of dollar assets, while the dollar index hovered near a seven-week high following the FOMC decision. Additionally, foreign investors remained net sellers of Korean assets, extending their selling streak to six straight sessions and adding to demand for dollars. Meanwhile, oil prices retreated from recent highs as Saudi Arabia offered additional crude cargoes and the damaged East-West pipeline was expected to resume operations within days, offering some relief to Korea’s energy import bill, although Brent remained above $100 a barrel.

The South Korean won weakened to around 1,377 per dollar, retreating from a near two-year high amid heightened expectations for a Federal Reserve rate hike. Markets priced in a roughly 92% chance of a 25-basis-point hike this week, while the 10-year Treasury yield held near 5%, keeping the dollar firm. Brent traded around $108 a barrel as Middle East tensions and supply disruptions raised 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 regional supply disruptions. Foreign investors remained net sellers of Korean stocks, increasing dollar demand, while semiconductor exporters' dollar sales were less prominent. Meanwhile, revised RFI-K rules allowing offshore won settlement through the BOK's Won International Wire Network marked a further step toward won internationalization.

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.