[Edaily Reporter Lee Jeong-yoon ] Despite negative factors such as a sharp drop in the KOSPI, massive stock sales by foreign investors, and instability in the Middle East, the won-dollar exchange rate fell below 1,400 won. Even though factors that typically drive up the exchange rate all occurred at once, the rate hit its lowest level in about 11 months.

Analysts attribute the accelerating decline in the exchange rate to a steady flood of dollar sales from exporters—particularly semiconductor companies like Samsung Electronics and SK Hynix—combined with the dollar losing strength as expectations for further U.S. interest rate hikes have weakened.

The market is closely watching whether the recent decline in the exchange rate represents a process of the “benchmark” falling rather than a temporary fluctuation. Some forecasts suggest that if the supply of dollars driven by the semiconductor boom continues and the dollar remains weak, the exchange rate could drop as low as 1,350 won.

◇Foreign Selling and Middle East Tensions Couldn’t Stop It… Exchange Rate ‘Plummets’ to the 1,390 Won Range

According to MP Doctor on the 19th, the exchange rate closed at 1,397.7 won during intraday trading (as of 3:30 p.m.), down 14.1 won from the previous trading day. This marks the lowest level in about 11 months, since September 24 of last year (1,397.5 won). During the trading session, the rate dropped as low as 1,396.0 won, the lowest since September 24 of last year (1,392.7 won).

What is notable is that the won strengthened despite risk-averse sentiment in the financial markets that day. The won broke through the 1,400-won level even as the KOSPI plunged more than 5 percent, foreign investors recorded net sales of nearly 4 trillion won in domestic stocks, and tensions in the Middle East escalated.

The changing supply-and-demand dynamics in the foreign exchange market are cited as the primary driver behind the recent decline in the exchange rate.

Following a massive inflow of funds last month related to SK Hynix’s issuance of American Depositary Receipts (ADRs), semiconductor companies such as Samsung Electronics and SK Hynix have been steadily injecting dollars earned from exports into the market. The volume of dollar sales by exporters, which used to be concentrated at the end of each month, has recently been entering the market on an ongoing basis.

Moon Jeong-hee, an economist at KB Kookmin Bank, said, “It appears that the supply and demand forces driving the exchange rate have changed since July,” adding, “Semiconductor companies are in a position where they must continue to sell the dollars they earn, resulting in a steady flow of about $200 million to $400 million per day.” She further explained, “The demand for dollars has weakened significantly compared to before.”

External conditions are also contributing to the won’s strength. The dollar is weakening because expectations for an additional interest rate hike by the Federal Reserve (Fed) in September have faded due to sluggish U.S. inflation and consumer indicators, and the rise in long-term Treasury yields is being interpreted as a result of fiscal instability. The yen’s strength following the joint U.S.-Japan intervention is also supporting the won’s appreciation.

◇Increased likelihood of stabilizing in the 1,300 won range… Next support level at 1,350 won

Experts believe that if this trend continues, the won-dollar exchange rate is highly likely to stabilize around 1,300 won.

The key variable is how long the dollar supply surplus—driven by the semiconductor boom—will last. Analysts suggest that if exporters continue to sell dollars while demand for dollar purchases fails to pick up, the exchange rate is more likely to gradually decline within the 1,300-won range rather than rise back above 1,400 won.

Economist Moon Jeong-hee predicted, “For the exchange rate to stabilize in the 1,300-won range, the most critical factor is whether the semiconductor sector’s rapid growth continues, allowing for sustained dollar inflows,” adding, “If volatility in financial markets—such as stock prices and interest rates—does not increase significantly, stabilization in the 1,300-won range is possible in August or September.”

Some observers are even forecasting that the exchange rate could fall to the 1,350 won level. Park Sang-hyun, an analyst at iM Securities, said, “We expect the rate to stabilize in the 1,300 won range, with the low point around 1,350 won,” adding, “If the dollar weakens further—as the likelihood of additional rate hikes this year diminishes following the Fed’s decision to hold rates steady in September—a rate below 1,350 won is also possible.”

Other variables include the extent of demand from investors looking to buy dollars in anticipation of a rebound whenever the exchange rate falls, as well as how long the dollar’s weakness will persist.

Moon Da-won, an analyst at Korea Investment & Securities, said, “As recently as last week, many expected a short-term rise due to the perception that the exchange rate’s decline was excessive,” and predicted, “Supply and demand will drive the exchange rate down in the third quarter, but dollar flows will determine whether it falls further in the fourth quarter.”