The South Korean won continues its downward spiral against the greenback, with the KRW/USD exchange rate comfortably sitting in the 1,500-won range and now eyeing the 1,520-won threshold.

The prolonged weakness of the won is being driven by a complex mix of geopolitical developments—namely the shifting prospects of the war involving Iran—and renewed anxieties over potential interest rate hikes by the U.S. Federal Reserve.

Despite the sharp depreciation, South Korea’s Ministry of Economy and Finance and the Bank of Korea have expressed strong caution, maintaining that the current foreign exchange volatility is "excessive compared to the sound fundamentals of the Korean economy."

Volatile Trading and Night Market Closings
According to financial market data, the KRW/USD exchange rate closed at 1,517.40 won during the overnight trading session at 2:00 AM on May 23 (KST). This marks a slight increase of 0.20 won from the Seoul foreign exchange market’s daytime close of 1,517.20 won, where the currency had already plummeted 11.1 won, weighed down by a massive 12-day consecutive selling spree by foreign investors in the domestic stock market.

The trading day originally began with a relatively stronger won. Entering the New York session at around the 1,517 won level, the exchange rate briefly dipped to a intraday low of 1,512.00 won, buoyed by growing optimism surrounding a potential end to the Iran war and a subsequent drop in international crude oil prices.

However, the tide quickly turned following hawkish remarks from a key U.S. Federal Reserve official, which rapidly erased the won's early gains.

Fed's Hawkish Stance and Inflation Woes
The upward pressure on the dollar intensified after Federal Reserve Governor Christopher Waller signaled a more aggressive monetary policy stance.

"I would support removing the 'easing bias' language from the policy statement," Governor Waller stated. "This is to make it explicitly clear that a future interest rate cut is not necessarily more likely than a rate hike."
Adding fuel to the fire, the latest consumer sentiment data from the United States further exacerbated market anxieties. The University of Michigan’s consumer survey revealed that long-term inflation expectations have surged significantly.

May 5-10 Year Long-Term Inflation Expectations: 3.9%
Month-on-Month Change: Increased by 0.4 percentage points
Driven by the combination of rising U.S. Treasury yields and a strengthening dollar index, the KRW/USD exchange rate faced severe upward pressure toward the end of the session, peaking at an intraday high of 1,518.00 won before settling.

Market analysts warn that if domestic equity outflows persist and the Federal Reserve maintains its hawkish rhetoric, the 1,520-won psychological barrier could be breached in the coming days, posing a fresh challenge to South Korea's macroeconomic stability.

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