[Edaily Lee Jeong-yoon Reporter Kim Guk-bae] Expectations in the foreign exchange market regarding the “appropriate level” of the won-dollar exchange rate are rapidly declining.

Just a month ago, forecasts suggested that the high exchange rate in the 1,500 won range would persist for a considerable period and could even rise to 1,600 won; however, recently, a growing number of experts are predicting an exchange rate of 1,300 won by year-end.

This is the result of changing supply-and-demand conditions—including the conversion of SK Hynix American Depositary Receipts (ADRs) and dollar sales by exporters—combined with the Bank of Korea’s interest rate hikes and improving domestic growth.

There are also predictions that as the market’s benchmark for a fair exchange rate declines, the behavior of foreign exchange market participants may change. This suggests that the “buy-the-dip” mentality—where investors buy dollars every time the exchange rate falls, expecting it to eventually rise again—may weaken.

◇More Experts Forecasting a Rate in the 1,300 Won Range… “Downward Outlook” Prevails in the Medium Term

According to the Seoul Foreign Exchange Brokerage on the 10th, the exchange rate closed at 1,418.4 won in weekly trading, up 2.3 won from the previous trading day. During the session, it fell as low as 1,408.8 won, marking its lowest level in 10 months since October 2 of last year (1,399.5 won).

Some analysts suggest it is difficult to view the recent exchange rate trend as a mere short-term correction. The exchange rate has fallen for six consecutive weeks since early July. Given that there have been no instances of six consecutive weekly declines over the past five years, the market is closely watching to see if this signals a shift in the medium- to long-term trend.

In fact, the exchange rate has even fallen below the long-term upward trend line established over the past five years. Results measuring how far the exchange rate has deviated from its long-term trend show that it has dropped to a level corresponding to the bottom 1% of historical fluctuations.

Market outlooks have also changed noticeably compared to a month ago. According to a survey by Edaily of eight foreign exchange experts from domestic and international banks and securities firms, most weighed in favor of a medium- to long-term decline in the exchange rate. The prevailing view is that the exchange rate will settle in the late 1,300s or early 1,400s by year-end.

Experts cite changes in interest rates, growth rates, and supply and demand as the reasons for the market’s lowered expectations.

Expectations for further interest rate hikes by the U.S. Federal Reserve (Fed) are waning; the interest rate differential between South Korea and the U.S. has narrowed due to the Bank of Korea’s rate hikes; and domestic growth is proving more robust than anticipated. Dollar sales by exporters also appear to be on the rise.

Park Sang-hyun, an analyst at iM Securities, said, “The likelihood of the Fed holding interest rates steady is increasing due to a slowdown in U.S. employment,” adding, “After the September Federal Open Market Committee (FOMC) meeting, we may even see the exchange rate drop to the 1,350 won level.”

Moon Da-woon, an analyst at Korea Investment & Securities, said, “We plan to further lower our lower-end forecast of 1,410 won for the second half of the year,” adding, “If the dollar’s weakness gains momentum, we could see the exchange rate reach the 1,350 won range by year-end.”

Lee Min-hyuk, an analyst at KB Kookmin Bank, also assessed, “In the short term, bargain-hunting of the dollar due to oversold conditions may occur, but considering the current account balance, growth rate, and tight monetary policy, the underlying trend is downward.”

There is also analysis suggesting that the shift in supply and demand that has driven the recent decline in the exchange rate will not be a one-time occurrence.

Seo Jeong-hoon, a researcher at Hana Bank, explained, “The direction of the exchange rate has completely shifted with the influx of foreign exchange from SK Hynix, and major exporters in sectors such as semiconductors and shipbuilding are continuing to hedge against currency risk and sell dollars, anticipating the possibility of further depreciation.”

◇ “Short-term rebound possible”… Counterarguments note “psychology of a high exchange rate still persists”

However, given that the exchange rate has plummeted by nearly 160 won over the past month, the possibility of a short-term rebound remains.

Cho Yong-gu, a research fellow at Shinyoung Securities, said, “After the end of August, as most of the routine foreign exchange transactions—such as interim corporate tax payments—are completed and actual demand for dollars begins to flow in, a technical rebound could occur.”

Choi Kyu-ho, a researcher at Hanwha Investment & Securities, also noted, “While July saw a trend of dollar sales by exporters, settlement demand from importers is expected to increase going forward,” adding, “In the short term, I anticipate a trading range of 1,410–1,470 won, but conditions favorable to the won are likely to persist as we approach the end of the year.”

There are also views that the recent decline in the exchange rate is a temporary phenomenon rather than a trend.

Park Hyung-joong, a researcher at Woori Bank, said, “The recent decline was largely influenced by supply and demand factors, such as SK Hynix ADRs,” adding, “While expectations for a fair exchange rate have lowered, the sentiment that the won will eventually rise again remains.”