South Korean Won Slides to Three-Week Low as Dollar Strengthens

The South Korean won extended its recent losses against the US dollar, sliding to around 1,475 won per dollar and touching its weakest level in more than three weeks. The decline came as the greenback broadly strengthened on expectations that US interest rates will stay elevated for longer, leaving little room for the won to recover.

The won's slide comes just days before the Bank of Korea's next policy decision, with markets widely expecting the central bank to keep its benchmark interest rate unchanged. Analysts say policymakers have limited room to maneuver, caught between currency volatility on one side and persistently high housing prices on the other, which together narrow the scope for any near-term easing.

To help stabilize the currency, South Korean authorities are preparing to issue foreign-exchange stabilization bonds as early as late January. Officials have tripled this year's issuance ceiling to $5 billion, a move seen as a signal that the government is ready to bolster its reserves and step in to defend the won if depreciation pressures persist.

Adding another layer of concern, regulators are closely watching a rise in US dollar deposits held at domestic banks, as households and businesses increasingly hedge against further won weakness. The trend suggests growing unease among market participants about the currency's near-term trajectory.

The broader dollar strength driving the won's decline stems largely from shifting expectations around the US Federal Reserve's policy path, with investors increasingly betting that American rates will remain higher for longer. That view has capped any meaningful rebound in the won despite the Bank of Korea's efforts to manage the situation.

For South Korea's trade-dependent economy, the won's trajectory carries significant weight. A weaker currency can boost the competitiveness of exporters by making their goods cheaper abroad, but it also raises costs for importers and businesses reliant on foreign raw materials and energy, adding to inflationary pressure. The currency's performance will remain a key variable shaping the Bank of Korea's policy calculus in the months ahead.