Seoul: Officials from major global investment banks and local lenders have indicated that the volatility in the South Korean foreign exchange (FX) market is anticipated to ease if tensions in the Middle East subside, due to the country's robust economic fundamentals and stable foreign currency liquidity.
According to Yonhap News Agency, this assessment emerged from a meeting between the Ministry of Finance and Economy and officials from prominent financial institutions, including Goldman Sachs, Barclays, Deutsche Bank, BNP Paribas, Hana Bank, and KB Kookmin Bank. The discussion focused on the impact of the ongoing conflict involving Iran on financial and FX markets.
Market participants acknowledged that the FX market has been experiencing increased volatility due to external factors. However, they noted that South Korea's economic fundamentals remain strong, supported by robust export performance and sound external stability. They also emphasized that the country's foreign currency liquidity remains stable, and exchange rate volatility is likely to diminish quickly if Middle East tensions ease, as per the ministry's report.
Currently, the Korean won has been trading below the critical 1,500-won level in recent sessions. This follows the conflict that began in late February after U.S.-Israeli strikes on Iran, which have caused global oil prices to surge, raising concerns over inflation and a potential economic slowdown.
Moon Ji-sung, the director general for international economic affairs at the ministry, highlighted that various policy measures and evolving market conditions will help improve supply and demand in the FX market. He pointed to factors such as the inclusion of Korean government bonds in the World Government Bond Index (WGBI) and the launch of the reshoring investment account (RIA) as positive contributors.
Moon further stated, "The government will closely monitor developments in the Middle East and take decisive measures to stabilize the market if excessive volatility in the won emerges that is not in line with economic fundamentals."
On Tuesday, the won closed at 1,504.2 per dollar, up 2.1 won from the previous session's close. The won's strength was observed as investors kept a close watch on developments in the Middle East, with a critical deadline set by U.S. President Donald Trump for Iran to reopen the Strait of Hormuz fast approaching. Trump has renewed threats to destroy Iranian infrastructure if Iran fails to comply and reach a peace deal with the United States. Meanwhile, Iran has dismissed a 45-day ceasefire proposal, demanding a permanent resolution to the conflict, as reported by foreign media.