The nominal effective exchange rate, which shows the value of the won against the currencies of major trading partners, has risen to its highest level in about two years. The won-dollar exchange rate, which once approached the 1,600 won range, has come down to the 1,320 won range. Bank of Korea Governor Shin Hyun-song said, "The won is still weak," hinting that there is room for the exchange rate to fall further.
According to figures compiled by the Bank for International Settlements (BIS) on the 26th, the won's nominal effective exchange rate stood at 94.83 (2020=100) as of the 20th. It is the highest since 94.91 recorded on October 9, 2024.
The nominal effective exchange rate is an indicator that calculates currency value by weighting trade shares with partner countries; a higher figure means the won is stronger than the currencies of major countries.
The indicator fluctuated in the range of 100 to 103 in 2020-21, during the spread of COVID-19. It sank to 91.26 at the end of December 2024 after the emergency martial law incident, and was pushed to 85.9 at the end of February this year, just after the Iran war broke out. In June, when the won-dollar rate jumped to the 1,560 won range in the wake of stock rebalancing by foreign investors and other factors, it set a lower low of 81.99. In the second half, demand for won conversion from export companies such as chipmakers surged and the won quickly turned stronger, and the nominal effective exchange rate has also been on the rise.
The real effective exchange rate traced a similar path. The real effective exchange rate is calculated by factoring in price differentials with trading partners on top of the nominal rate. The won's real effective exchange rate in September was 92.73, up 3.2% from 89.88 in August, the highest since 93.43 in November 2024. It has continued to rise for three months since bottoming at 83.03 in June.
At a press conference on monetary policy direction held on the 22nd, Governor Shin said, "With the dollar strong in recent years, it is important to look at the BIS effective exchange rate, which takes the weights of trading partners into account. As of the end of August, the BIS effective exchange rate was about 89, lower than the average of 101, so it can be said that the won is still weak."
The monthly average won-dollar rate based on weekly closing prices peaked at 1,528.0 won in June. It then continued to fall, to 1,488.9 won in July, 1,404.4 won in August and 1,358.8 won in September. The October average, compiled through the 23rd, was 1,337.2 won, the lowest since 1,332.8 won in September 2024.
The intraday low also keeps getting lower. The rate, which set this year's low of 1,328.9 won on the 16th, renewed its low for five straight trading days: 1,327.6 won on the 19th, 1,325.4 won on the 20th, 1,322.8 won on the 21st and 1,321.2 won on the 22nd. This is the lowest since 1,317.1 won on October 2, 2024.
Lee Jung-hoon, a researcher at Daishin Securities, said, "Considering the historic scale of the won-dollar adjustment and wariness over the National Pension Service halting its currency hedging (avoiding exchange rate fluctuation risk), the 1,320 won area could act as short-term resistance," but forecast, "Reflecting the strength of supply and demand and dollar weakness in the first half of next year, the rate will try to enter the 1,200 won range during the first half."