The Korean won fell against the US dollar on Monday, with the dollar-won pair trading near 1,488, as escalating tensions in the Middle East and higher oil prices drove demand for the greenback. Market strategists expect the exchange rate to fluctuate between 1,470 and 1,500 in the near term.
Geopolitics and oil prices pressure the won
Strategists Sim and Wong said the move reflected South Korea’s status as a net oil importer and as a higher-beta Asian currency that tends to react more sharply in risk-off conditions. Sentiment deteriorated further after reports of a blockade in the Strait of Hormuz, a key shipping route, which pushed global oil benchmarks higher and triggered broader risk aversion across regional markets.
Brent crude futures have settled above $90.50 a barrel, almost 17% higher since the start of the year. The rally in energy prices is tightening financial conditions for economies heavily dependent on imported fuel, including South Korea.
Central bank highlights external shocks, not capital flight
Officials at the Bank of Korea said the latest bout of weakness in the won is different from past slides that were driven by domestic capital outflows. They pointed instead to external shocks, including higher energy costs, global market volatility, and portfolio adjustments abroad following a strong equity rally in recent months.
Nominee Shin said inflation risks now outweigh downside risks to growth, stressing that global forces remain the main driver of price trends in Korea. The central bank has signaled that future policy decisions will hinge on whether the current conflict-related disruptions prove short-lived or extend over the coming months.
Strong US dollar amplifies global impact
The won’s decline comes as part of a broader strengthening of the US currency. The US dollar index, which tracks the dollar against a basket of major peers, has risen above 106 for the first time in five months, influencing asset prices worldwide.
Recent US data showed annual inflation at 3.5%, pushing expectations for Federal Reserve interest rate cuts further out. A prolonged delay in US monetary easing typically reduces the flow of capital into assets that depend heavily on global liquidity and risk appetite.
Domestic trade data show energy strain
South Korea’s trade balance remained in surplus in March, posting a $4.2 billion gain. However, the figures also showed a 12.8% jump in energy import costs, signaling growing pressure on the country’s terms of trade as oil prices rise.
Technical levels and market focus
Technical signals for the dollar-won pair remain bearish in terms of daily momentum, although relative strength indicators suggest the won is recovering from oversold territory. Key support for the pair is seen at 1,475 and 1,469, while resistance is expected around 1,492 and 1,500, based on recent moving averages and Fibonacci retracement levels.
Traders are watching closely to see whether the dollar-won rate breaks above the psychologically important 1,500 level. A clear move beyond that threshold could mark the start of a new phase of currency repricing across Asian markets.
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