Won Volatility: Middle East Conflict & Rate Fluctuations | Dong-A Ilbo

The range of fluctuations increases during night trading.
“If the war lasts longer, it could cost 1,600 won.”

As geopolitical risks increase due to the war between the United States and Iran, which began on the 28th of last month, the won-dollar exchange rate is also experiencing large fluctuations. This month, the daily fluctuation of the won-dollar exchange rate was the highest since the novel coronavirus infection (COVID-19) outbreak.

According to the Bank of Korea on the 8th, the daily fluctuation in the won-to-dollar exchange rate in weekly trading in the Seoul foreign exchange market through the 6th of this month was calculated to be 13.2 won on average. Compared to the monthly average daily change in the past, it is the largest since March 2020 (13.8 won) when the COVID-19 incident was at its peak.

The rate of exchange rate fluctuation is also unusually large. As of the 6th of this month, the daily rate of change in the won-dollar exchange rate averaged 0.91%, which was also the largest since March 2020 (1.12%). The rate of change has been rising for three consecutive months, including December of last year (0.36%), January of this year (0.45%), and February (0.58%).

Exchange rate fluctuations appeared to widen significantly during night trading. On the 7th, the won-dollar exchange rate closed at 1,481.6 won in night trading in the Seoul foreign exchange market (as of 2 a.m.). This is an increase of 5.2 won compared to the weekly trading on the 6th (as of 3:30 p.m.). At 0:22 on the 3rd, it soared to 1,505.8 won, hitting 1,500 won for the first time since March 12, 2009, during the global financial crisis.

Experts believe that as Korea is highly dependent on energy imports, the exchange rate is reacting sensitively to the war between the United States and Iran. Seo Jeong-hoon, a researcher at Hana Bank, predicted, “If the conflict is resolved within the four weeks suggested by U.S. President Donald Trump, the won-dollar exchange rate will stabilize after exceeding 1,450 won.” There is also an opinion that if the war prolongs for more than a month, the exchange rate could exceed 1,500 won. Park Hyeong-joong, a researcher at Woori Bank, observed, “When the Middle East problem prolongs, armed conflict expands, and the blockade of the Strait of Hormuz becomes a reality, (exchange rate forecasts) should be kept open to 1,530 to 1,600 won.”

Concerned that a rise in the exchange rate could lead to an increase in consumer prices, the Bank of Korea held a meeting to review the price situation on the 6th. Deputy Governor of the Bank of Korea Kim Woong said, “As oil prices rise due to the situation in the Middle East, upward pressure on prices has increased,” and added, “We will closely monitor the price situation.”