The strained won remains a central concern in Seoul as the currency weakened despite the US Federal Reserve’s latest rate cut. The development underscores how the strained won continues to react more to heavy dollar demand than to changes in the Korea US rate gap.
The Federal Reserve lowered its benchmark rate by a quarter point to a range of 3.5 to 3.75 percent. The move narrowed the policy gap with South Korea to about 1.25 percent, reaching the smallest difference since early 2023. Korean officials welcomed the shift because a narrower spread helps ease capital-outflow risks that often pressure the strained won.
Market analysts noted that Korea’s central bank now has slightly more room to adjust policy. Even so, they emphasized that foreign exchange volatility remains elevated and requires careful monitoring. The Bank of Korea has kept its base rate at 2.5 percent since May, and policymakers continue evaluating whether local inflation trends justify future adjustments.
However, the won did not strengthen after the Fed decision and instead extended its recent slide. The currency closed at 1,473 per dollar on Thursday after losing ground throughout the session. Traders said strong dollar-buying demand from importers and investors overshadowed the positive rate-gap shift.
Officials explained that retail and institutional investors increased overseas asset purchases in recent months. Korean corporations also increased their practice of holding dollar earnings rather than converting them, which further tightened the market. Consequently, the strained won stayed weak even when the rate differential narrowed in earlier months.
Economists highlighted historical patterns to illustrate current conditions. The won traded near 1,300 per dollar in August when the gap peaked at two percentage points. Nevertheless, the currency later tumbled past 1,480 per dollar even after the spread narrowed to 1.5 points. They argued that these moves demonstrate how global demand for dollars outweighs Korea’s interest-rate dynamics.
The Bank of Korea governor reiterated that the recent depreciation reflects investment flows rather than policy rates. He said rising overseas equity investments have created persistent demand for dollars across multiple sectors.
Local equity markets also reacted unevenly to the rate cut. The Kospi opened strongly but reversed later and closed 0.59 percent lower at 4,110.62. Analysts attributed early gains to improved risk sentiment before noting that profit-taking and currency concerns softened the afternoon outlook. The Kosdaq followed a similar pattern, touching a yearly high during intraday trading before closing flat.
Financial authorities plan to continue assessing market conditions while coordinating with major institutions. They expect currency volatility to remain elevated as companies secure year-end payments and investors rebalance global portfolios.
