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# Dollar Strengthens as U.S. Tariff Threats and Inflation Concerns Deepen; Korean Won Slumps 2.6%
"Exchange Rate Likely to Break 1,400 Won Barrier Before August 1 Tariff Deadline"
(Seoul) – The Korean won/dollar exchange rate is approaching the 1,400-won milestone for the first time in two months, driven by the won’s significant 2.6% depreciation against the dollar in July. This marks the Korean won as the second weakest currency globally this month, trailing only the Japanese yen. The ongoing decline is largely attributed to the strengthening U.S. dollar, which gains momentum on the back of heightened tariff threats from President Donald Trump and escalating inflation concerns in the U.S.
Market analysts predict that the exchange rate could surpass the 1,400-won threshold if uncertainty persists ahead of the mutual tariff exemption’s expiration on August 1.
# Korean Won Nears 1,400 Won Amid Accelerating July Depreciation
On July 20, Seoul’s foreign exchange market reported that the won/dollar exchange rate closed at 1,391.6 won in after-hours trading on July 18. Over the course of the month, the rate has surged 36.3 won based on close-of-day prices. During after-hours trading on July 17, it peaked at 1,396.5 won.
This sharp rise in the exchange rate echoes the turbulence in April when reciprocal tariff news between the U.S. and South Korea sent the rate soaring to 1,487.6 won. However, the subsequent start of tariff negotiations and easing domestic political uncertainties helped stabilize the won.
By May, the exchange rate had dipped below 1,400 won for the first time in five months, with further drops bringing it to 1,347.1 won by June 30. Yet, renewed dollar strength fueled by Trump’s tariff rhetoric has reversed that trend this month.
On July 7, President Trump publicized a letter to South Korean President Lee Jae-myung, signaling his intent to impose a 25% tariff on all South Korean exports to the U.S. starting August 1. Similar communications have reportedly been issued to Japan, the European Union, Mexico, and Canada—all of which have faced revised or heightened tariff rates.
“Trump’s aggressive tariff policies are amplifying global market tensions, resulting in rising exchange rates,” said Baek Seok-hyun, an economist at Shinhan Bank.
Suh Jung-hoon, Chief Researcher at Hana Bank, added, “Widening trade conflicts are sparking fears of severe economic slowdowns, driving a flight to safety that is strengthening the dollar significantly.”
# U.S. Tariffs and Inflation Pressures Propel the Dollar Higher
The U.S.’s tariff measures are starting to fuel domestic inflation, which has tempered expectations of a Federal Reserve interest rate cut. This has provided additional support for the dollar’s firm upward trajectory.
Last week, data showed the U.S. Consumer Price Index (CPI) rose 2.7% year-on-year in June, matching market expectations and nearing February’s high of 2.8%.
CME FedWatch data indicated that the likelihood of the Federal Reserve leaving its key interest rates unchanged in September increased to 47.1%, up from 39.6% a week prior.
Suh from Hana Bank explained, “The ripple effects of tariffs, combined with potential inflationary pressures and the Federal Reserve’s lean toward more hawkish policies, are extending the dollar’s bullish momentum.”
Adding to the volatility was heightened speculation over Federal Reserve Chairman Jerome Powell’s potential dismissal. President Trump’s sharp public criticisms, coupled with his calls for Powell's resignation, stirred fears of further market destabilization.
# Korean Won Among Worst-Performing Global Currencies in July
The Korean won has been one of Asia’s worst-performing currencies this month, declining 2.61% against the dollar. This underperformance places it behind the Japanese yen (-3.19%) but ahead of the euro (-1.41%), British pound (-2.39%), Swiss franc (-0.99%), and Swedish krona (-2.15%).
Other Asian currencies displayed greater resilience, with the Australian dollar depreciating by just 1.05%, offshore Chinese yuan by 0.33%, and Taiwanese dollar by 0.72%.
“The Korean won’s pronounced sensitivity to tariff announcements stems from South Korea’s dependence on exports,” noted Lee Min-hyuk, an economist at KB Kookmin Bank. “Additionally, sustained demand for U.S. dollars among domestic investors for overseas investments further weakens the won."
Lee also highlighted that part of the won’s recent depreciation reflects a correction following its sharp appreciation earlier this year.
# Outlook: Exchange Rate Expected to Breach 1,400 Won Amid Persistent Uncertainty
Market experts foresee the won/dollar exchange rate exceeding the 1,400-won mark if uncertainties surrounding the August 1 tariff exemption persist or escalate.
“The exchange rate could climb past 1,400 won as August 1 approaches, particularly if delays in the Federal Reserve’s anticipated rate cuts deepen concerns,” observed Lee Min-hyuk.
The upcoming Federal Open Market Committee (FOMC) meeting, scheduled for July 29–30, is expected to play a crucial role in shaping monetary policy and investor sentiment.
Baek Seok-hyun from Shinhan Bank forecasted more moderate fluctuations, predicting an average exchange rate of 1,380 won for Q3 and 1,350 won for Q4. He also suggested that the appointment of a new, dovish Fed Chair—should Powell be replaced—along with eased U.S.–China trade tensions, could temper market volatility and strengthen the won.
With uncertainties looming large, experts recommend a cautious approach. “Market participants should adopt conservative strategies until the August 1 deadline passes,” Baek concluded.
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