Volatility in the won-dollar exchange rate has reached its highest level since the global financial crisis this year. The monthly average fluctuation expanded to 47.0 won for the first time since 2009, a figure that is extremely large even compared to the periods of the foreign exchange crisis and the global financial crisis. Daily volatility also stood at 8.2 won, its highest level since 2009. As the exchange rate plunged below the 1,400-won level in a short period, concerns are growing over foreign exchange losses and deteriorating profitability, especially among export-oriented companies.

This year's exchange rate movements were heavily influenced by geopolitical developments in the Middle East and flows of foreign investment capital. In March, the rate surged by 90.4 won due to the outbreak of war in the Middle East, while in April it fell by 46.8 won on expectations of U.S.-Iran negotiations. In May and June, continued foreign net selling of stocks and Middle East unrest drove the rate up by 24.6 won and 41.5 won, respectively, before it plummeted by 125.4 won in July. Years with such large monthly exchange rate fluctuations are similar to crisis periods, such as 1997 (72.2 won), 1998 (97.6 won), 2008 (68.3 won), and 2009 (61.2 won).

Changes in supply and demand conditions underlie the recent decline in the exchange rate. The influx of funds from SK Hynix's listing of American Depositary Receipts (ADRs) led to a concentration of dollar selling by export companies, strengthening won-buying momentum. Additionally, the joint intervention by U.S. and Japanese foreign exchange authorities on the 31st of last month to purchase yen in response to its weakness also contributed to the strength of East Asian currencies. Such coordinated U.S.-Japan intervention marks the first of its kind in 28 years since the 1998 Asian financial crisis.

A shift toward a weaker dollar also fueled the exchange rate's decline. As U.S. employment indicators came in weaker than expected, expectations for the Federal Reserve (Fed) to raise its benchmark interest rate within the year weakened, causing the Dollar Index to fall to as low as 99.399 during trading. U.S. Treasury Secretary Scott Bessent's recent mention of "excessive volatility" in the Korean won also heightened expectations for a stronger won.

Due to these factors, the won-dollar exchange rate closed at 1,409.5 won on the 8th. The intraday low of 1,407.3 won was the lowest level in about 10 months since October 2 of last year (1,399.5 won). Over 25 trading days, the rate dropped by 139.7 won from 1,555.8 won on the 2nd of last month, averaging a daily decline of 5.6 won. This pace is more than twice as fast as the average daily decline (2.5 won) recorded from April to June of last year.

There are also forecasts that if the psychological support level of 1,400 won is breached, the exchange rate could enter the 1,300-won range. Economist Lee Min-hyuk views 1,400 won as the primary support level, analyzing that a stabilization in the 1,300-won range is possible if the Fed holds interest rates steady, international oil prices stabilize, and export companies continue selling dollars.

However, some believe the recent decline in the exchange rate may be an excessive movement driven by a temporary concentration in supply and demand. There are opinions that the won could also shift to a weakening trend if the sluggish domestic stock market leads to a resumption of overseas stock investments and foreign capital outflows, or if the yen weakens again due to diminishing effects of U.S.-Japan coordination. Lee Nak-won, an FX derivative specialist at NH NongHyup Bank, stated that the exchange rate temporarily fell excessively due to a supply-demand imbalance for dollars triggered by SK Hynix, and that a technical rebound may occur in August after entering the 1,300-won range, depending on supply-demand equilibrium.

A stronger won could positively impact falling import prices and stabilize the foreign exchange market. However, a rapid decline in the short term places a burden on the currency risk management of export companies and could lead to deteriorating profitability for small and medium-sized enterprises lacking sufficient foreign exchange hedging capacity. Sales and operating profit forecasts premised on specific exchange rates may also be disrupted, making it inevitable for companies to adjust their management plans for the second half of the year.