"Concerns Surrounding Second Plaza Accord: Daily Exchange Rate Fluctuations Reach 25 KRW, Peak After Night Trading"

# Korean Won-U.S. Dollar Exchange Rate Fluctuates Amid Rumors of a "Second Plaza Accord" ## U.S.-Korea Currency Discussions Trigger Significant Market Response (Seoul=Yonhap News) Reporter Min Sunhee - Concerns about a potential "Second Plaza Accord" have caused substantial volatility in South Korea's foreign exchange market, with the won-dollar exchange rate oscillating by more than 25 Korean won daily on average in May. This heightened sensitivity points to the highest volatility levels observed since the extension of trading hours in July last year. While direct U.S. intervention to weaken the dollar seems improbable, market experts believe there might be indirect measures at play. ## U.S.-Korea Currency Talks Lead to Notable Exchange Rate Volatility in May On May 18, data from the Seoul Foreign Exchange Market indicated that the average daily won-dollar exchange rate volatility—considering intraday highs and lows, including overnight trading—reached 25.26 won in May. This is the highest level since the forex trading hours were extended to 2 a.m. in July 2024. In November 2024, during Donald Trump's election victory, the average daily movement was around 11.79 won, slightly dipping to 11.50 won in December amidst South Korean political turmoil. By January 2025, it expanded to 12.46 won. A period of relative stability followed in February (9.47 won) and March (9.79 won), before picking up to 14.85 won in April due to U.S. tariffs. In May, the fluctuations surged above 25 won. A notable instance occurred on May 2, witnessing intraday volatility of 48.5 won, the highest since South Korea’s forex market hours extension. The rate opened at 1,440.0 won on the back of a stronger dollar and fell to 1,391.5 won during overnight trading, amid renewed optimism about U.S.-China trade negotiations. Recent reports on U.S.-South Korea tariff and currency discussions spurred sharp swings. The night-trading closing rate on May 16 was 1,400.0 won, nearly unchanged from the previous week (1,399.8 won). However, significant intraday volatility saw rates fluctuate over 40 won, from 1,387.9 to 1,428.8 won. On May 12, easing U.S. recession fears amid U.S.-China trade negotiations strengthened the dollar, leading to 33.9 won intraday volatility. Foreign media reports on May 14 about U.S.-Korea currency talks incited speculation on won revaluation, causing a 31.5 won intraday movement. According to Lee Nakwon, a foreign exchange derivatives analyst at NH NongHyup Bank, “Last week’s U.S.-Korea trade talks significantly impacted market volatility, especially following a 5% appreciation of the Taiwanese dollar after U.S.-Taiwan negotiations.” He added, “Speculations around similar pressure on the won fueled market concerns.” Baek Seokhyun, an economist at Shinhan Bank, noted, “Competing pressures—won appreciation linked to easing U.S.-China tensions and dollar strength driven by bargain-hunting—created wide intraday fluctuations.” He emphasized, “While agreements on exchange rate manipulation remain uncertain, the inclusion of currency policies in U.S.-Korea trade negotiations inherently tempers the potential for sharp rate increases.” ## Exchange Rate Volatility Trends (Unit: Korean Won) | Date | Daily Average Volatility | |---------------------|--------------------------| | July 2024 | 7.35 | | August 2024 | 11.83 | | September 2024 | 9.98 | | October 2024 | 8.93 | | November 2024 | 11.79 | | December 2024 | 11.5 | | January 2025 | 12.46 | | February 2025 | 9.47 | | March 2025 | 9.79 | | April 2025 | 14.84 | | May 2025 (up to May 16) | 25.26 | ## Experts Dismiss Likelihood of "Second Plaza Accord" but Consider Indirect Measures Possible Despite recent currency discussions, foreign exchange experts widely dismiss the potential for a 1985 Plaza Accord-like scenario, where leading economies collectively devalued the dollar. Analysts cite the expanded foreign exchange market scale and complex geopolitical economic interests as factors. Park Hyungjoong, an economist at Woori Bank, stated, “Direct agreements between the U.S. and South Korea to weaken the dollar and appreciate the won are unlikely. Current fluctuations are more likely due to one-off events or market disturbances.” Lee Minhyeok, an economist at KB Kookmin Bank, concurred, noting that today’s foreign exchange market dynamics and broader U.S. political-economic context make coordinated interventions challenging. Baek, the Shinhan Bank economist, added, “40 years ago, unilateral moves to weaken the dollar without broader consensus from Europe or China were more feasible. Today, they are not.” Experts also highlight South Korea's low foreign currency reserves and potential market distortions from direct government interventions. Lee Nakwon pointed out, “With reserves shrinking since October last year and GDP growth expected to hover around 0%, there's limited incentive to induce further won appreciation near the 1,400-won level.” Instead, analysts predict indirect strategies to nudge the won higher, such as imposing costs on Koreans' dollar asset purchases or incentivizing foreign holdings of won-denominated assets. Baek suggested that the U.S. Treasury might increase pressure through currency manipulation designations or link tariffs to foreign exchange policies. Baek concluded, “Even without explicit actions, rumors or expectations about U.S. moves can shape market psychology and add pressure on exchange rates.” Seo Junghoon, senior researcher at Hana Bank, predicted, “Efforts might focus on recognizing and rectifying the undervaluation of the won in terms of real effective exchange rate metrics. Such cooperative responses could ease market concerns while avoiding major disruptions.”