Seoul forex market dealers say currency forecasts have become meaningless recently as extreme volatility driven by war and supply-demand factors overrides traditional fundamentals. USD-KRW fell over 100 won in one month, and FX swap points showed abnormal spikes followed by sharp reversals within a day. Dealers describe unprecedented market conditions where predictions consistently move in the opposite direction and correlations break down.
USD-KRW Falls Over 100 Won in One Month
USD-KRW declined steadily from a high of 1,559.20 won on the 1st of this month to 1,451.30 won at 1:21 AM on the 29th, according to Yonhap Infomax daily trading data (screen number 2150). This marks the lowest level since May 7.
On the previous day, KOSPI plunged over 10% and foreign investors net sold nearly 5 trillion won in the securities market, yet USD-KRW moved downward as large corporations sold dollars. A Bank A forex dealer said, "I think this is the first time I've seen such extreme volatility. All predictable variables went the opposite way, and the market seems completely overturned since the war broke out."
Dealers Report Forecast Breakdown Amid Unprecedented Volatility
The dealer added, "We used to operate books by taking a specific view like 'let's buy at this level' rather than responding to spot in real time. But after the war broke out, views became completely unnecessary."
End-of-year forecasts from 26 financial institutions predicted quarterly average rates starting at 1,419 won in the first quarter, then 1,414 won in the second quarter, 1,414 won in the third quarter, and a slight decline to 1,411 won in the fourth quarter. Some institutions predicted USD-KRW could fall to the late 1,300 won range due to Fed rate cuts and foreign capital inflows from WGBI inclusion.
However, USD-KRW surged to 1,561.50 won on the 5th of last month—the highest level since the financial crisis—as unexpected variables including surging international oil prices and US policy uncertainty emerged.
Traditional KOSPI-USD-KRW Correlation Inverts
A Bank B dealer explained, "Common sense says KOSPI and the exchange rate move in opposite directions, but now when KOSPI falls the exchange rate also falls, and when KOSPI rises the exchange rate also rises."
The dealer continued, "Normally when foreigners sell stocks, custody buying should push the exchange rate up, but it keeps going the opposite way. It's a peculiar market where the peak of the exchange rate and the peak of stocks coincide, and they keep falling together." The dealer added, "It seems like a market driven purely by supply and demand now. There's so much dollar liquidity domestically that it looks difficult for dollar strength to emerge immediately."
An analyst lamented, "Supply-demand impact is so large these days that predicting the exchange rate is not easy. On top of that, we have to watch government and corporate reactions, making it even harder to write forecast reports."
FX Swap Points Show Abnormal Movements
On the 27th, FX swap points surged abnormally across all tenors as SK Hynix ADR-related funds, exporter negotiation volume, and institutional won liquidity imbalances converged. The 1-month tenor turned positive for the first time in about 4 years and 2 months due to short-term strength, but reversed sharply the next day, retracing much of the surge.
A Securities C dealer said, "Not just the exchange rate but also the foreign currency funding market is fluctuating a lot. Market-wide volatility is extremely high." The dealer added, "Foreigners engaged in large-scale dollar futures selling in the currency futures market, and combined with month-end negotiations, USD-KRW fell more than expected. How much further it will fall depends on confirming supply-demand volume."
Stock Market Triggers 4 Circuit Breakers from 1st to 28th
Extreme volatility persists in the domestic stock market. From the 1st to 28th of this month, circuit breakers were triggered 4 times in total. Buy-side and sell-side sidecars were also activated 23 times during the same period. On the previous day, circuit breakers were triggered simultaneously in both the securities market and KOSDAQ market, with KOSPI and KOSDAQ plunging 10.84% and 7.72% respectively.
The Bank B dealer said, "It's not even a financial crisis, but the market is moving at financial-crisis levels. I'm more worried about stocks being destroyed than the exchange rate. Who would have predicted this kind of outlook?"
FAQ
What caused USD-KRW to fall over 100 won in one month?
USD-KRW declined from 1,559.20 won on the 1st of this month to 1,451.30 won on the 29th as large corporations sold dollars and supply-demand factors overrode traditional fundamentals, according to dealers in the Seoul forex market.
Why do Seoul forex dealers say forecasts became meaningless?
Dealers report that war and supply-demand factors now override fundamentals, causing predictions to consistently move in opposite directions. Traditional correlations like the inverse KOSPI-USD-KRW relationship have inverted, making medium- to long-term forecasts unreliable.
How many circuit breakers were triggered in the Korean stock market from the 1st to 28th of this month?
Circuit breakers were triggered 4 times total from the 1st to 28th of this month. Buy-side and sell-side sidecars were activated 23 times during the same period. On the previous day, KOSPI fell 10.84% and KOSDAQ fell 7.72%.
