The South Korean won has fallen to levels only seen during the Asian Financial Crisis and the 2008 Financial Crisis

The won is unlikely to make a meaningful recovery until Q2 2023

Firms that import goods into South Korea will continue to face elevated costs associated with FX weakness. As the won continues to trend downward over the coming months, firms selling to end-customers in the Korean market should expect a persistent squeeze on their bottom lines. MNCs should consider how these factors are likely to affect their local partners and determine if they pose any risks in the form of lower inventory holdings or through additional price increases to end-customers.

Exporters should not expect the usual benefits that come with a weak local currency due to the present high-inflation environment. Most firms in South Korea are currently unable to leverage the weakened KRW into higher sales volumes due to consistent upward pressure on input costs. Furthermore, given the struggles firms currently face to secure inputs, raising production volumes to capitalize on a weak currency is no longer a given. 


The South Korean won has depreciated by over 10% relative to the US dollar since the start of the year. Last week, the KRW:USD rate fell past the 1,300 mark for the first time since the aftermath of the 2008 financial crisis. The KRW’s value has been steadily falling as the Fed’s aggressive interest rate hikes have drawn out foreign portfolio investments from the Korean market, and elevated costs for commodities (particularly oil and natural gas) have imposed a consistent trade deficit.

Our View

The KRW will continue to depreciate through Q1 2023 due to the forces mentioned above. While the pace of depreciation may slow early in Q4 2022 (and perhaps even experience brief reversals) as oil and natural gas prices moderate, the currency will remain under pressure from a persistent trade deficit until Q2 2023.

During this period, the US Fed will continue to raise interest rates at an aggressive pace. The year-end interest rate in the US is expected to be approximately 3.75%, while that of South Korea will likely be significantly lower at 2.75%. As a result, the more lucrative returns offered by the US to portfolio investors, along with the greenback’s status as a reserve currency, will continue to attract portfolio investors and draw capital away from the Korean market during this period of heightened economic volatility.

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