SEOUL — The South Korean won has recorded its most significant drop against the U.S. dollar since the 2008 global financial crisis, falling over 7 percent since the start of 2024. This decline comes amidst heightened geopolitical tensions and a strengthening U.S. dollar, according to data released on Sunday.
According to Yonhap News Agency, The won closed at 1,382.2 won against the dollar on Friday, marking a 7.3 percent decrease from the 1,288 won recorded at the end of the previous year. This is the largest fall since March 1990, when South Korea transitioned from the multiple-basket pegged system to a market average exchange rate system. For comparison, during similar periods in 2008 and 2009, the won fell by 6.9 percent and 5.8 percent respectively against the dollar.
Recently, the won briefly reached the closely monitored level of 1,400 won during intraday trading last week. However, verbal interventions from financial authorities have so far prevented further declines. The resilience of the U.S. economy, which has surpassed expectations, has contributed to a stronger dollar as it prompts speculation that the Federal Reserve might delay cuts to interest rates given persistent high inflation.
Adding to the currency's volatility are ongoing geopolitical risks, notably from the Russia-Ukraine conflict and increasing tensions in the Middle East, which have fueled a risk-averse sentiment among investors. During the first trilateral finance ministers' meeting last week, officials from South Korea, the United States, and Japan expressed serious concerns about the recent sharp depreciation of the South Korean won and the Japanese yen. They noted that the depreciation of the won was excessive compared to other nations, especially in light of the U.S. dollar index's 4.8 percent rise this year.
The won's decline was the seventh largest among 26 major global currencies monitored, with the Chilean peso leading the drop at 10 percent this year, followed by the Japanese yen at 9.8 percent, according to Federal Reserve data.
In response to the currency's volatility, a South Korean finance ministry official stated that the government has implemented a 24-hour market monitoring system, indicating that any significant future declines in the won would be unlikely, though much would depend on the situation in the Middle East. The Bank of Korea's Governor, Rhee Chang-yong, also commented on the situation, noting that the won-dollar exchange rate could stabilize if Middle Eastern tensions do not worsen, despite many uncertainties in the region.