The South Korean won has hit its lowest level against the US dollar in nearly 16 years, with the exchange rate breaching the 1,480 won mark on December 27, amid rampant political instability and economic concerns. This recent downturn marks the first time since the global financial crisis of 2009 when the won-dollar exchange rate fell below this threshold, raising alarms about the local currency's vulnerability.
On the morning of December 27, the won opened at 1,467.5 to the dollar but quickly spiraled, breaking through the significant psychological barrier of 1,480 won just hours later, trading at 1,483.90 by 11:16 AM according to the Seoul Money Brokerage Services. This movement reflects acute apprehension over the political environment, especially as the country braces for the impending impeachment vote of acting President Han Duck-soo over his contentious failure to appoint judges to the Constitutional Court.
Experts are warning of potential volatility, predicting the exchange rate could soon reach 1,500 won per dollar. “The won-dollar exchange rate could reach 1,500 won around January or February next year,” noted Park Sang-hyun, economist at iM Securities. The rising costs are partly fueled by market reactions to the uncertainty posed by both the impeachment crisis and the anticipated economic policies under the soon-to-be-inaugurated Donald Trump administration.
Indicators show this recent depreciation isn't just about local politics. The US dollar has strengthened markedly, driven by hawkish signals from the Federal Reserve about future interest rate policies. With the Fed projecting fewer cuts than previously anticipated through 2025, the dollar remains buoyant. This situation is compelling many other Asian currencies to experience downward pressure, establishing the won’s downfall as part of broader regional trends.
The prevailing uncertainty relates back to South Korea’s tumultuous political climate following President Yoon Suk-yeol’s controversial attempt to impose martial law on December 3, which has since resulted in his impeachment. Following this, the fallout has manifested itself not only through political instability but also significant impacts on financial markets. The benchmark KOSPI index has seen losses, dropping below the 2,400 mark consecutively for three days, as investors weigh the unease surrounding the political situation.
“Domestic factors alone could push the exchange rate above 1,500 won,” stated Cho Yong-gu, analyst at Shinyoung Securities. He added, “If the new U.S. administration’s proposed universal tariffs are implemented soon, it could climb to 1,550 won.” This development could lead to broader repercussions for South Korea's economy, which is heavily reliant on export-led growth. The correlation between domestic politics and currency fluctuations has never been clearer.
For the acting President Han Duck-soo, his leadership is at stake with the National Assembly set to vote on the impeachment motion amid rising tensions. This scenario hasn’t just rattled the government but has also raised concerns among international allies about South Korea’s democratic stability.
The situation escalated over the week, as the won slumped nearly 2.5% against the dollar, culminating on Friday with analysts keeping close tabs on how these currency movements intertwine with local and global economic realities. The weekly trends have underscored just how susceptible the won is to external pressures and domestic politics. The Bank of Korea has pledged to inject liquidity and explore every available option to stabilize the currency market, reflecting the urgency of the current crisis.
This bipartisan challenge has presented itself under the backdrop of international economic shifts as well. The strengthening of the dollar amid aggressive Fed policies creates even more complexity for the South Korean economic outlook, serving as both immediate concern and longer-term risk. Without decisive political resolution, the prospect of the won breaching the 1,500 won mark becomes increasingly likely, spurring fears over inflation and economic growth.
Such high stakes highlight the urgent need for policy action from both the South Korean government and financial authorities. If political divisions continue to entrench themselves and the gripping uncertainty intensifies, stakeholders can expect continued volatility not just for the won, but for the broader region's economic health.
Moving forward, all eyes will be on the political decisions made within the National Assembly and how these choices might echo across the ocean to Washington D.C., especially with the new administration poised to influence trade relations. The path forward for the South Korean won and its economy hinges on the intertwined fates of domestic political stability and international economic policies.
