Won-Dollar Exchange Rate Closes at 1484.5 Amidst Middle East Tensions

On the 24th, the won-dollar exchange rate closed at 1484.5 won in the Seoul foreign exchange market, up 3.5 won from the previous trading day. Geopolitical instability in the Middle East resurfaced, putting renewed upward pressure on the won-dollar rate. Uncertainty over a potential ceasefire agreement between the US and Iran, coupled with the US reaffirming its intention to control the Strait of Hormuz, amplified concerns over crude oil supply disruptions, acting as factors driving the exchange rate higher.

The foreign exchange market anticipates a period of sensitivity to geopolitical variables. If tensions in the Middle East persist, a diagnosis suggests that rising international oil prices could combine with a stronger global dollar, leading to sustained downward pressure on the won. Lee Min-hyuk, a researcher at Kookmin Bank, explained that the ongoing war of nerves between the US and Iran, and the unstable situation in the Middle East, are stimulating oil price hikes and risk aversion. Min Kyung-won, a researcher at Woori Bank, reported that international oil prices had risen for four consecutive trading days, closing above $95 per barrel for West Texas Intermediate (WTI). Iran's tougher stance on blockading the Strait of Hormuz has increased negotiation uncertainty.

From a supply and demand perspective, import companies' payment demands ahead of month-end and foreign capital flows are identified as key variables. With foreign investors recently maintaining a net selling trend in stocks, coupled with demand for dividend remittances, the upward pressure on the exchange rate could be amplified. Conversely, export companies' dollar selling (nego) and strategic currency hedging by the National Pension Service have acted as factors limiting the upside.

The securities industry anticipates the exchange rate to fluctuate mainly between the late 1470s and early 1490s next week. If geopolitical risks escalate further, attempts to break above the 1490 level during trading hours cannot be ruled out, according to analysis. Lee Seung-hoon, a researcher at Meritz Securities, analyzed that the current rise in the exchange rate is largely driven by non-economic variables such as the war. Should a ceasefire possibility become visible, oil prices could stabilize, leading to a gradual decline in the exchange rate. In the short term, a market characterized by significant volatility driven by news flow appears unavoidable.