Seoul expects won to stabilize in H2 on SK hynix ADR proceeds, current account surplus

The South Korean government expects the won-dollar exchange rate to gradually stabilize in the second half of this year, reflecting the underlying strength of the economy, including an expanding current account surplus.

The government said large-scale dollar inflows from SK hynix's American depositary receipt listing would support won appreciation.

Moon Ji-seong, the Ministry of Economy and Finance's international economic affairs coordinator, said Sunday that the won-dollar supply-demand balance in the second half of this year is expected to gradually shift to reflect South Korea's fundamentals, including a growing current account surplus. "The current exchange rate is still disconnected from those fundamentals," he said in a phone interview with Yonhap News Agency.

The won-dollar rate has shown some signs of stabilization, dipping below 1,500 won during trading in recent sessions, but the government still considers it elevated relative to the economy's underlying conditions — suggesting the rate could fall further if supply-demand dynamics improve.

The government sees SK hynix's ADR issuance as a significant factor for the foreign exchange market.

"The SK hynix ADR listing will be a major driver," Moon said, adding that forward dollar sales by exporters are also expected to increase going forward.

SK hynix raised about $26.5 billion through its ADR issuance on Friday. If a substantial portion of those proceeds is converted into won for domestic investment and other uses, the resulting increase in dollar supply could provide additional support for the won.

Moon also offered a positive assessment of recent reforms to the foreign exchange market structure.

"The move to a 24-hour foreign exchange market is strengthening market transparency," he said, adding that authorities now have a broader arena in which to operate. "The authorities' capacity to respond has actually grown," he said.

The remarks counter concerns raised in some quarters that extended overnight trading could amplify exchange rate volatility. The longer trading hours have also expanded the time and tools available to authorities to monitor market conditions and act when needed.

Geopolitical tensions in the Middle East remain a variable. However, the government believes the market has already largely priced in the risk of renewed conflict in the region, and that market sensitivity to such developments has diminished.

The government said that even if global dollar strength and geopolitical uncertainty persist, an improving domestic supply-demand environment — driven by the current account surplus and increased dollar inflows — could allow the won to chart a differentiated course relative to other major currencies.