The president has publicly diagnosed the reason behind the won-dollar exchange rate recently hovering over the 1,500 mark.
The primary cause is the flow of funds from foreign investors. With the KOSPI index surging over 86% since the beginning of the year, foreigners who have seen substantial gains have begun selling off stocks to lock in their profits. In May alone, they net-sold over $11.5 billion worth of shares. As they convert their won proceeds back into dollars to repatriate, this surge in foreign exchange demand for dollars has weakened the won's value.
This situation was compounded by several global headwinds. First, geopolitical risk stemming from the U.S.-Iran war has been a major factor. The virtual paralysis of the Strait of Hormuz, a key oil transport route, caused international oil prices to spike, reigniting global inflation fears. Second, these heightened inflation concerns pushed U.S. Treasury yields higher. As the value of the safe-haven dollar climbed, emerging market currencies like the Korean won inevitably weakened in comparison.
In this context, the president's statement signals an important policy direction. By defining the exchange rate issue as a temporary imbalance in supply and demand rather than a crisis of economic fundamentals, he is signaling a focus on mitigating volatility through communication rather than depleting foreign reserves with large-scale interventions. The fact that foreign reserves actually increased in April, despite stabilization measures, supports this interpretation.
Ultimately, the remark is a signal of conditional normalization—the idea that the exchange rate will return to normal once the stock market stabilizes and geopolitical anxieties ease. However, without a concurrent stabilization in external variables like global oil prices and U.S. interest rates, a stable domestic stock market alone may not be enough to quickly pull the won-dollar rate away from the 1,500 level.
- Rebalancing: The process of realigning the weightings of a portfolio of assets. In this context, it refers to foreign investors selling overperforming Korean stocks to take profits.
- Geopolitical Risk: The risk of investment returns declining because of political changes or instability in a country or region.
- Foreign Exchange Demand: The demand for a country's currency by foreigners. In this case, the high demand for U.S. dollars from investors selling won-denominated assets.