[Economic Outlook] KRW/USD Exchange Rate Breaches 1,400 Won | The Return of King Dollar and the New Normal

[Economic Outlook] The Return of King Dollar and the Tasks for the Korean Economy

It is a time when the phrase “the exchange rate is crazy” comes out naturally. Past the days when 1,200 won was called a ‘high exchange rate’, concerns are growing that 1,400 won might be becoming the new floor. In this post, we will analyze the causes of the recent exchange rate spike focusing on the Trump Trade and economic fundamental gaps, and cool-headedly examine what the unfolding era of 1,400 won means for our economy and investment.

KRW/USD Exchange Rate Breaches 1,400 Won: The Return of King Dollar and the New Normal

1. Exchange Rate 1,400 Won, Is it a Temporary Shooting?

Recently, the KRW/USD exchange rate broke through the psychological resistance line of 1,400 won. Numbers seen only during the past IMF foreign exchange crisis or the Global Financial Crisis are now becoming daily life.

The important thing is that this upward trend is not a short-term event. Market experts are weighing the possibility that the current high exchange rate is not a temporary ‘Over-shooting’, but a **‘New Normal’** caused by structural factors. In particular, as solid U.S. economic indicators and Korea’s sluggish exports coincide, the pressure for the won’s depreciation is stronger than ever.

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2. Three Key Causes of the Exchange Rate Spike

The current exchange rate rise cannot be explained by a single reason simply. External ‘King Dollar’ pressures and internal ‘Won Weakness’ factors are working in combination.

1) The Return of the Trump Trade

Expectations and concerns about the ‘Trump 2.0’ era after the U.S. presidential election are fueling the strong dollar. Former President Trump’s key pledges of Tariff Hikes (Protectionism) and Tax Cut Policies inevitably induce inflation in the U.S.

• This slows down the Fed’s rate cut speed, and consequently becomes a powerful driver pushing up the dollar’s value.
• The market is already pricing in the strong dollar that ‘America First’ will bring.

2) Korea-US Growth Rate Gap (Fundamental Gap)

The exchange rate is ultimately the report card of that country’s economy. Unfortunately, the difference in economic stamina between Korea and the U.S. is widening. It is a basic principle of economics that the currency (dollar) of a growing country is strong, and the currency (won) of a country with stagnant growth is weak.

Category	USA	KOREA
Economic Situation	'Alone' Boom (Solid consumption, employment)	Domestic demand sluggishness, concerns over China-led slowdown
Growth Rate Forecast	Solid growth continues	Low growth in the 1% range expected in 2025 (IMF, etc.)
Currency Value	Strong (King Dollar)	Weakness pressure persists

3) Exodus of Foreign Capital

Foreign selling in the domestic stock market (KOSPI) is fierce. As the earnings momentum of Korean companies weakens and disappointment with the ‘Value-up Program’ overlaps, foreign investors are selling won and buying dollars to leave. This Capital Outflow creates a vicious cycle that further fuels the exchange rate rise.

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3. Exchange Rate Outlook and Investment Implications

Then, what will happen to the exchange rate in the future? Experts predict a ‘Fixation of High Exchange Rates’ for the time being. Even if U.S. interest rate cuts begin, the speed is expected to be very slow, and unless the Korean economy shows a dramatic rebound, it seems difficult to go below the mid-1,300 won range.

Response Strategies for Investors

• Holding Dollar Assets: In terms of asset allocation, holding a certain portion (10-20%) of the portfolio as dollar assets (U.S. stocks, dollar ETFs, etc.) has become an essential hedge.
• Interest in Export Stocks: In a high exchange rate environment, there is room for earnings improvement in companies with high export ratios such as automobiles and shipbuilding. (However, Trump’s tariff risk is a variable.)

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4. Conclusion: The Eye to Turn Crisis into Opportunity

The era of the 1,400 won exchange rate gives us the pain of high inflation and asset value decline, but it is also an opportunity to awaken the necessity of global asset allocation. Rather than simply waiting for the exchange rate to drop, it is time for a flexible investment strategy to ride the strong dollar trend. If you analyze market changes cool-headedly and respond, opportunities will surely come even amidst crisis.

Key Summary:
The exchange rate spike is a structural phenomenon caused by the Trump Trade and the gap in Korea-US economic fundamentals. Now that the 1,400 won exchange rate has become the new normal, dollar asset allocation is not a choice but a necessity.

The content of this blog is only reference material for investment judgment, and investment decisions must be made under the individual's judgment and responsibility. Under no circumstances can the information in this blog be used as evidence of legal responsibility for investment results.