'We budgeted conservatively at 1,400 won' — exporters sound alarm as exchange rate swings wildly

"When we drew up this year's business plan last year, we set the won-dollar exchange rate at 1,400 won. The rate was in the 1,450-won range at the time, so internally we said we were being conservative — but now the market rate has fallen even below that."

An executive at a mid-sized company with heavy export exposure made the remarks in a recent interview. When companies were drafting their 2026 business plans late last year, the won-dollar rate was fluctuating in the upper 1,400-won range. A weaker won gives exporters a price advantage in overseas markets, while a stronger won benefits importers.

The problem is that won weakness was one of several factors behind South Korean small and medium-sized enterprises' record export earnings in the first half of this year — an advantage the recent sharp strengthening of the won now threatens to eliminate in the second half. Businesses and other economic actors are most wary of uncertainty, and both sharp rises and sharp falls in the exchange rate place a burden on companies.

As recently as early last month, the won-dollar rate was well above 1,500 won. After surging to an intraday high of 1,559.2 won on July 1, the rate fell to an intraday low of 1,376.5 won on Monday — a drop of 182.7 won in under two months. That represents a decline of about 11.7 percent from the peak.

A bigger concern is that the won could strengthen further. The recent move has been attributed to a combination of heavy dollar selling by exporters and a broader global weakening of the dollar. Large-scale dollar inflows from semiconductor and other export companies have also amplified exchange rate volatility.

Domestic mid-sized and small companies had already identified the exchange rate as the biggest economic variable for the second half of the year. In a survey of 250 mid-sized companies in major export sectors conducted by the Korea Federation of Mid-Sized Companies from June 22 to July 3, 47.3 percent cited "expanded exchange rate volatility" as the top factor likely to worsen second-half exports — ahead of "rising costs for raw materials and labor" at 36.4 percent and "higher logistics costs" at 30.9 percent.

Separate research shows the exchange rate directly affects profitability. In the federation's "2025 Mid-Sized Enterprise Export Outlook Survey" of 462 exporting mid-sized companies, 23.8 percent — the largest share — said the optimal won-dollar rate for securing profit was between 1,375 won and 1,400 won. Monday's intraday low of 1,376.5 won came close to the lower bound of the profitability range that mid-sized firms most commonly cited at the time of the survey.

The strong export performance of small businesses this year has amplified the impact of exchange rate swings. According to the Ministry of SMEs and Startups, SME exports in the first half of this year reached $64 billion, up 11.6 percent from the same period last year — the largest first-half total on record and the first time the figure has surpassed $60 billion in a first half. The number of exporting SMEs also rose 2.4 percent to 80,490 companies, itself a first-half record.

By product category, cosmetics exports hit a record $5.07 billion, up 30.7 percent. For SMEs that boosted earnings through export expansion in the first half, the sharp appreciation of the won has become a new variable in the second half. However, the stronger won also reduces the cost burden of imported raw materials. "A stronger won makes imports more favorable and exports less so," said an official in the cosmetics industry. "For the cosmetics sector, the exchange rate burden is largely offsetting itself."

The speed of the reversal is adding to corporate anxiety. As recently as last month, a won-dollar rate in the 1,500-won range was pushing up the cost of imported raw materials and components. For exporters, it also boosted price competitiveness and inflated the won value of dollar-denominated sales. But with the rate falling into the 1,300-won range in just over a month, export profitability has now emerged as a pressing management concern.

"It is harder for companies when the exchange rate moves too far in too short a time than when it moves steadily in one direction," said an official at one mid-sized company. "The impact will vary by company depending on export and raw-material import structures, but if the rate moves outside the range assumed in the business plan, the burden of managing second-half earnings will inevitably grow."