Won Tops 1,540 Per Dollar, Highest Since Financial Crisis, Deepening Pressure on Korean Stocks

The South Korean won weakened past 1,540 per dollar on June 5 as Middle East geopolitical tensions and foreign capital outflows combined to rattle local markets. The move took the currency to its highest level since the global financial crisis.

A jump in oil prices, broader dollar strength and persistent selling in domestic equities have kept pressure on the won. Verbal intervention by the government and the Bank of Korea has failed to change the market’s direction. After surging into the 1,540 won range in overnight trading on June 4, the exchange rate climbed above 1,540 won again in daytime trading on June 5.

At 9:53 a.m. in Seoul, the won was trading at 1,540.6 per dollar. That was the highest level since March 10, 2009, when it touched 1,561 won intraday during the financial crisis. The currency opened at 1,529 won, down 0.7 won from the previous daytime close, then reversed course and extended its gains.

The won had already traded in the 1,540 won range in overnight dealings after the daytime session ended on June 4. It rose as high as 1,540.4 won at about 5:05 p.m.

Through June 4, the won had stayed in the 1,500 won range for 13 straight trading sessions, the longest such streak since the 1997-1998 Asian financial crisis.

The latest rise came as oil prices climbed after ceasefire talks between the US and Iran stalled and military clashes expanded. On June 3, West Texas Intermediate futures settled up 2.41% at $96.02 a barrel, while Brent futures gained 1.89% to $97.81. The dollar strengthened as investors sought safer assets, with the dollar index, which tracks the greenback against six major currencies, moving above 99.5.

Foreign investors’ continued net selling of South Korean stocks added to the pressure on the won. Since May 7, they have been net sellers for 19 straight trading sessions, with cumulative net sales exceeding $47.8 billion. Renewed uncertainty over US tariff policy also contributed to the currency’s rise.

Weakness in equities tied to a slide in US chip stocks appears to have spilled into the foreign-exchange market. Overnight, fabless chip designer Broadcom led a broader drop in semiconductor shares even after posting solid results, as earnings estimates were not revised higher. Foreign investors were also increasing their net sales of Kospi shares, unloading nearly $580 million worth of stock.

With domestic and external headwinds piling up, market-stabilization steps such as verbal intervention appear to be losing their effect. Deputy Prime Minister and Finance Minister Koo Yun-cheol told a market-monitoring meeting on June 4 that authorities would “immediately take necessary measures” against excessive one-way moves. On May 28, BOK Governor Shin Hyun-song said the central bank would respond firmly to excessive swings in the exchange rate. Even so, the won’s rise has shown little sign of easing.

Financial markets are increasingly bracing for a prolonged period of won weakness if the Middle East crisis drags on. Lee Min-hyuk, an economist at KB Kookmin Bank, said the won was expected to show sharp volatility in a 1,520 won to 1,540 won range on June 5. Falling oil prices and improving risk appetite may ease pressure from offshore dollar strength, but supply-and-demand pressure from foreign equity selling should support the lower end of that range.

Kim Yoo-mi, an analyst at Kiwoom Securities, said the biggest burden remains foreign investors’ selling of domestic stocks. If geopolitical uncertainty tied to the Middle East eases and foreign net selling subsides, the won could fall back into the 1,400 won range. If outflows continue, however, the currency’s downside rigidity is likely to persist for a considerable period even as the current-account surplus expands.

Kyung-joo Kang, Hankyung.com reporter, qurasoha@hankyung.com