Trump's 'King Dollar' is Coming... "Prepare for 1500 Won Exchange Rate"

The won-dollar exchange rate is soaring. Until the third quarter of last year, the won-dollar exchange rate was in the 1300 won range, but it surpassed 1400 won with the election of U.S. President Trump in November and surged to the 1470 won range due to the '12·3 Martial Law Incident'. This is the highest level in about 16 years since March 2009, during the global financial crisis. Experts advise preparing for the possibility of the won-dollar exchange rate surpassing 1500 won, as there is no momentum to lead the value of the won to strengthen in the short term. There is also a forecast that it will be difficult for the exchange rate to fall below 1400 won in the mid- to long-term perspective due to the weakening of Korea's industrial competitiveness.

Exchange Rate Surges Amid Internal and External Uncertainty

The won-dollar exchange rate has shown high volatility since the second half of last year. On July 3, it was 1390 won 60 jeon based on the weekly closing price (3:30 p.m.), approaching 1400 won, but fell to 1307 won 80 jeon on September 30 due to expectations that Korean export companies would benefit from China's economic stimulus measures. Until September, the slowdown in U.S. inflation also raised expectations for a rate cut by the U.S. Federal Reserve (Fed), pulling down the won-dollar exchange rate.

However, in October, the possibility of former U.S. President Trump's re-election emerged, and the won-dollar exchange rate rose sharply. In November, when Trump's victory was confirmed, the won-dollar exchange rate broke the psychological resistance line of 1400 won. This is because concerns grew that Trump's protectionist policies, such as imposing universal tariffs, could stimulate U.S. inflation and slow down the Fed's rate cut pace.

What fueled the rising won-dollar exchange rate due to the 'Trump risk' was President Yoon Suk-yeol's declaration of martial law and the ensuing impeachment situation. As political uncertainty increased, foreign investors sold off won-denominated assets such as domestic stocks. As a result, the won-dollar exchange rate surged by 69 won 60 jeon in about a month from 1402 won 90 jeon on December 3, the day President Yoon declared martial law, to 1472 won 50 jeon on the last trading day of the previous month, the 30th. It is the first time since March 13, 2009 (1483 won 50 jeon) that the won-dollar exchange rate exceeded 1470 won.

"Possibility of Surpassing 1500 Won in the Short Term"

Experts predict that the value of the won will remain weak for the time being. This is because Fed Chairman Jerome Powell revealed a hawkish tone last month, saying "it is time to be cautious about the pace of rate cuts," and it is expected to take at least several months to resolve domestic political uncertainty.

Se-jeong Hoon, a research fellow at Hana Bank, said, "All internal and external factors, such as the policy uncertainty of the Trump administration's second term, the Fed's hawkish stance, and domestic political turmoil, are not favorable to the value of the won," adding, "We see a high possibility of the won-dollar exchange rate rising to 1490 won before Trump's inauguration day and surpassing 1500 won in the short term."

The common opinion among foreign exchange market participants is that a reversal of the high-flying won-dollar exchange rate is only possible after the Constitutional Court decides on President Yoon's impeachment. Park Sang-hyun, a senior analyst at iM Securities, said, "The momentum to ease the expanded political uncertainty in Korea since December is the impeachment decision," adding, "Whether the impeachment is upheld or rejected, a clear political direction is a factor for the won's strength."

However, Park also said, "If political uncertainty increases, the downgrade of national credit ratings by global credit rating agencies will become a reality, so the won-dollar exchange rate will exceed 1500 won." Baek Seok-hyun, a researcher at Shinhan Bank, also explained, "We have set the upper limit of the won-dollar exchange rate forecast at 1500 won, but if domestic political turmoil intensifies, we have no choice but to adjust it even higher."

"Structural Weakness of the Won Due to Industrial Competitiveness Lagging Behind China"

Even if the impeachment decision and presidential election are held and domestic political turmoil is settled, it is analyzed that it will not be easy for the won-dollar exchange rate to calm down to the extent of falling below 1400 won. This is because Korea's industrial competitiveness is lagging behind China in the global market, and there are concerns that Korea will fall into a long-term recession due to political instability and aging.

Lee Nak-won, a foreign exchange specialist at NongHyup Bank, said, "Since the trade balance with China turned to a deficit for the first time in 31 years since diplomatic relations in 2023, it has faced a structural problem that can no longer return to a surplus," adding, "The won-dollar exchange rate will hit 1500 won in January and fall to an average of 1430 won in the second quarter and around 1400 won in the second half."

Park Sang-hyun, a senior analyst, said, "Many institutions, including the Bank of Korea, forecast that Korea's economic growth rate will remain in the 1% range this year," adding, "Although the won-dollar exchange rate will generally show a 'high in the first half, low in the second half' trend this year, if the 1% range of low growth becomes entrenched, it will be difficult to see the exchange rate in the 1400 won range as high." Se-jeong Hoon, a research fellow, said, "As confirmed in the Sewol ferry accident, the social gloom caused by large-scale human accidents immediately affects domestic consumption," adding, "There are also concerns that the economy will contract in the first quarter due to the impact of the Jeju Air accident."

Jeong Ui-jin Reporter justjin@hankyung.com