The U.S. dollar has risen over the past few weeks, boosted by strong U.S. economic data, Russia’s ongoing war against Ukraine, and Donald Trump’s re-election to the White House earlier this month. The greenback’s dominance has significantly weakened the South Korean won, with the won-dollar exchange rate topping the 1,400 won line several times this month.
The 1,400 won mark used to be considered a warning sign and Korea’s threshold for market intervention. When the Korean won sharply declined against the dollar in April, surpassing 1,400 won for the first time in 17 months, it was the fourth occurrence in the country’s foreign exchange history. But this level has already been breached several times this month, even surging past 1,410 won on Nov. 14.
With the so-called Trump trade in full swing, sending the dollar, U.S. stocks, and bitcoin soaring, market analysts and foreign exchange authorities now expect that the Korean won’s value could remain weak for months to come and that the 1,400 won per dollar could become the “new normal” for won-dollar exchange rates.
The dollar index, which tracks the greenback against a basket of six major currencies, hovered above 107 on Nov. 22, the highest level since October 2023. The recent appreciation mainly reflects investor expectations of fiscal easing and higher economic growth. Analysts project the dollar will remain strong until the first half of 2025.
“In the first half of 2025, the U.S. dollar is expected to continue its stronghold amid lower expectations for Federal Reserve interest rate cuts backed by robust economic data, tensions in the Middle East, and political uncertainties ahead of June elections in Europe,” said Daishin Securities analyst Lee Ju-won. “Geopolitical risks driven by U.S.-led deglobalization trends are likely to support the dollar further,” he added. “The won-dollar exchange rate is likely to break out of its 1,200 won to 1,300 won average range seen in the 2010s and edge towards a new, higher equilibrium.”
The dollar is only likely to begin weakening in the third quarter of 2025, according to analysts. “The dollar’s strength may unwind moderately in the third quarter of next year, amid a slowdown in the U.S. jobs market and interest rate cuts,” said Chun Kyu-yeon, an economist at Hana Securities.
“The Korean won could expect gains from Korea’s inclusion in the FTSE World Government Bond Index (WGBI), a narrowing interest rate differential between the U.S. and Korea, and Korea’s economic recovery in the second half of next year,” she explained.
However, experts cautioned that a second wave of dollar strength may come if the Trump administration imposes tariffs on China. If the Chinese yuan falls against the dollar, the Korean won is also likely to suffer, as the yuan is considered a proxy currency for the won.
“When the U.S.-China trade war began in 2018, the dollar gained 8%, the yuan dropped 8.2%, and the won fell 3.8% annually,” Chun explained. “This trend continued in 2019, with the won additionally falling 4.4% that year,” she added.
Given the depreciation rate of the Korean won during the previous trade war - approximately -8.2% over two years from 2018 to 2019 - analysts forecast the upper range of the won-dollar exchange rate to reach around 1,450 won.
“We can’t rule out the possibility that the won-dollar exchange rate could shoot up to 1,500 won if Trump imposes all the tariffs he proposed during the campaign, but for the near term, the upper limit of the exchange rate is set around 1,450 won, at least until his inauguration in January,” said Park Sang-hyun, an economist at iM Securities.
Foreign exchange officials are bracing for a prolonged period of a weaker won. But authorities are approaching recent trends differently. While historically, the Korean market has associated a won-dollar exchange rate of 1,400 won as a signal of economic instability, authorities claim that is no longer true.
“A won-dollar exchange rate of 1,400 won should be viewed differently from the past,” Deputy Prime Minister Choi Sang-mok recently said in a briefing. “The current price is qualitatively different from the surge experienced during the 1997 Asian financial crisis.”
