South Korean Won Slides to Three-Week Low Ahead of Central Bank Review

2026-01-12 economy

Seoul, Monday, 12 January 2026.
Despite record-breaking stock market highs, the won weakened past 1,460 per dollar, erasing recent intervention gains as persistent demand for safe-haven assets drives volatility.

Market Paradox: Currency Falters Amidst Equity Boom

On Monday, January 12, 2026, South Korea’s financial markets presented a striking dichotomy. While the benchmark KOSPI index surged to a historic high, closing at 4,624.79, the South Korean won depreciated sharply against the U.S. dollar [6][7]. The won-dollar exchange rate closed at 1,468.4 won, marking a significant increase of 10.8 won from the previous trading day [6]. This decline pushes the currency back into the 1,460 range for the first time in 10 trading days, effectively erasing the gains achieved following aggressive verbal interventions by foreign exchange authorities in late December [6][8]. The market’s behavior underscores a decoupling of equity performance and currency stability, driven by a complex mix of geopolitical tensions and structural domestic outflows.

Geopolitical Tensions and Dollar Strength

The depreciation of the won is largely attributed to a resurgence in the U.S. dollar’s global strength, fueled by heightened geopolitical instability and shifting economic expectations. Recent U.S. airstrikes in Venezuela and aggressive rhetoric regarding Greenland from U.S. President Donald Trump have amplified demand for safe-haven assets [6]. Consequently, the Dollar Index, which measures the greenback against a basket of major currencies, climbed to 99.24 on January 11, rising approximately 0.833% from 98.42 recorded on January 2 [6]. Furthermore, economic data from the U.S. has tempered expectations for interest rate cuts; the unemployment rate for December came in at 4.4%, defying the market forecast of 4.5% [8]. This resilience in the American labor market suggests that U.S. rates may remain higher for longer, capping any meaningful recovery for the won [1][8].

The ‘Seohak Ant’ Effect and Structural Outflows

Domestically, the won is facing structural headwinds from persistent capital outflows. Retail investors, colloquially known as “Seohak Ants,” are aggressively purchasing U.S. stocks, while corporations are increasing their dollar settlements [5][6]. This demand is reflected in the banking sector, where dollar deposits have surged by over 1 trillion won since late December [5]. Professor Heo Jun-young of Sogang University notes that this accumulation of dollar deposits signals a market expectation that the won will continue to lose value [5]. In response to this trend and to manage risk-weighted assets, major commercial banks have lowered interest rates on dollar deposits by 0.7 to 0.8 percentage points compared to January of last year, attempting to disincentivize excessive hoarding of the U.S. currency [5].

Policy Dilemma and Future Outlook

The current volatility poses a significant challenge for the Bank of Korea ahead of its upcoming policy decision. While the central bank is widely expected to hold interest rates steady, it is constrained by the dual pressures of exchange rate instability and elevated housing prices [1]. The Japanese Yen has also weakened due to fears regarding an early general election in Japan, with the won-yen fiscal exchange rate rising to 924.46 won per 100 yen [8]. Market experts warn that if the exchange rate approaches the psychological resistance line of 1,480 won, authorities may be forced to intervene once again to stabilize the market [6]. However, some analysts, such as Kim Dae-jong of Sejong University, caution that current measures are merely temporary fixes, predicting the exchange rate could potentially reach the 1,600 won range within the year if fundamental issues are not addressed [6].

Sources

South Korea currency