Korean Won Plummets to 17-Year High

The Korean won's value has sharply declined, reaching 1,561.5 won per dollar, its highest level in 17 years and 3 months since March 6, 2009. In the second quarter, the average exchange rate from April 1 to May 5 stood at 1,490.98 won, the highest in approximately 28 years since the first quarter of 1998.

A primary driver of this weakening won is attributed to foreign investors' net selling of domestic stocks, which has approached 120 trillion won year-to-date. This "Sell Korea" phenomenon, combined with a global dollar strengthening trend due to the prolonged war in the Middle East, has exacerbated the situation. Furthermore, a trend of corporations holding onto dollars earned overseas rather than converting them into won has been observed.

The weakening won is drawing attention as it could impact the broader economy, including an increase in import prices. The pressure on the won could intensify if a special law, which includes a $350 billion investment plan in the U.S., takes effect on the 18th of this month. Analysts suggest that the effect of verbal intervention by foreign exchange authorities has been limited due to strong demand for dollars from actual buyers amid a significant outflow of foreign capital from the stock market.

Meanwhile, the Organization for Economic Cooperation and Development (OECD) projects South Korea's potential growth rate to fall below 1.5% for the first time by the end of next year.