Middle East turmoil causes the KRW/USD exchange rate to approach 1500 KRW

The instability in the Middle East has caused the Korean won to surge against the US dollar, approaching 1,500 won. On the 4th, in Seoul’s foreign exchange market, the won/dollar exchange rate rose by 14.2 won from the previous day, trading at 1,480.3 won. This is the highest level recorded in recent years, and the upward pressure is expected to continue.

The main reasons for the exchange rate increase are the US and Israel’s airstrikes on Iran, the blockade of the Strait of Hormuz leading to worsening global trade, and the subsequent rise in international oil prices driving inflation. As such geopolitical risks persist, the preference for safe assets like the US dollar strengthens, causing the dollar to appreciate and further pushing up the exchange rate.

Foreign exchange market experts predict that the situation will be difficult to resolve in the short term. In particular, large-scale sell-offs of domestic stocks by foreign investors and rapid capital repatriation are additional factors contributing to the rising exchange rate. If foreign capital outflows continue, the exchange rate is likely to rise further.

If the Iran conflict prolongs, trade losses and rising international oil prices due to the Strait of Hormuz blockade could slow global economic growth. The Bank of Korea forecasts this year’s economic growth rate at 2.0%, with an international oil price expectation of around $65 per barrel, but current oil prices have already reached $81.4, increasing inflationary pressures.

However, experts believe that a 1,500 won exchange rate is unlikely to become the “new normal.” In the long term, it is expected that with intervention from foreign exchange authorities or a global economic recovery, the current instability will stabilize. The market anticipates proactive measures from authorities to stabilize the market, which could narrow future exchange rate volatility.