Expectations for further US rate hikes weaken
Markets price in a 67.2% chance of a pause next month
Expanded US buybacks of long-term Treasuries signal support for markets
Exporter dollar sales for settlement needs and shareholder returns add pressure
The won has strengthened into the 1,300-per-dollar range for the first time in more than 10 months, sharpening focus on whether the Korean currency has further room to gain. Analysts say the dollar had faced upward pressure as US-Iran negotiations dragged on, but fading expectations for additional US rate hikes and flow-driven factors such as exporter dollar sales are now fueling broader dollar weakness.
As of 8:30 a.m. in Seoul on Aug. 20, the won was trading at 1,389.0 per dollar. In the previous session, the won closed daytime trading at 1,397.7 per dollar, 14.1 won stronger than a day earlier. It was the first close below 1,400 per dollar since Sept. 29, 2025, when it ended at 1,398.7, marking the first such move in about 10 and a half months.
During the previous session, the won strengthened to as much as 1,389.1 per dollar. In overnight trading, it rose further to 1,385.4 as falling US Treasury yields added to dollar weakness.
The latest decline in the dollar reflects growing expectations that the Federal Reserve will leave its benchmark rate unchanged next month. The dollar index, which measures the greenback against six major currencies, fell below 100 in the previous session and traded in the 99 range, the lowest level in three months.
CME FedWatch showed fed funds futures pricing in a 67.2% probability that the benchmark rate will remain unchanged in September. That compared with 63.9% at the previous close, indicating rising confidence in a pause.
The US Treasury's decision to more than double its buybacks of long-term government bonds also weighed on the dollar. The Treasury raised the size of buybacks for bonds maturing in 9 to 11 years from a previous maximum of $2 billion to at least $4 billion. Markets viewed that as a sign the Treasury no longer intends to leave a sharp rise in long-term yields unchecked. Long-term yields fell, while a narrowing rate gap between the US and other major economies helped lift currencies including the euro and pound.
Dollar selling by exporters also contributed to the drop in the won-dollar exchange rate.
As the won has strengthened, exporters have found conditions more favorable for selling dollars to secure won funding. Market participants estimate that large exporter sales drove much of the exchange rate's decline in the previous session. Companies typically sell dollars near month-end, but recently they have been offloading holdings on a more frequent basis.
Analysts see conditions remaining supportive of further won strength for the time being. Foreign investors' net selling of South Korean stocks has eased, and semiconductor companies also have demand to convert dollar holdings into won for shareholder returns.
"Buying and selling are offsetting each other, but the slower pace of foreigners' net selling in domestic stocks is helping create a different dollar supply-and-demand environment from the first half," Park Sang-hyun, an analyst at iM Securities, said. If won strength persists, that could create a favorable backdrop for foreign fund inflows, he added.
Large shareholder-return programs at Samsung Electronics Co. and SK Hynix Inc. are also creating demand to convert corporate dollar holdings into won. With cash generation improving on stronger semiconductor conditions, any conversion of those holdings to raise won for large-scale shareholder returns could add to dollar supply in the foreign-exchange market.
Park said the two companies are expected to announce large shareholder-return programs, which would likely lead them to exchange foreign-currency holdings into won.
On Aug. 19, SK Hynix announced a plan to buy back and cancel 40 trillion won ($28.9 billion) worth of treasury shares. Interim corporate tax prepayments due at the end of this month and funding needs tied to the government's three mega-projects were also cited as factors that could increase corporate foreign-exchange conversions.
Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com