Contributor: Currency Hedger | Market Analysis: Louis Roche, Today Markets

The South Korean won has retreated towards 1,342 per US dollar after reaching its strongest level since October 2024, as renewed dollar strength and rising energy prices challenge the currency’s recovery. The move highlights South Korea’s exposure to imported energy costs at a time when geopolitical uncertainty is increasing pressure on global oil markets.

The US dollar index remains near its highest level since April 2025, supported by demand for safe-haven assets and concerns that higher energy prices could reignite inflationary pressures. With Brent crude trading above $106 per barrel and US consumer inflation data approaching, the won’s near-term direction will depend on the interaction between energy costs, Federal Reserve expectations and domestic exporter demand for the Korean currency.

South Korean Won Market Snapshot

Fundamental Drivers: Energy Costs and the US Dollar

Stronger US dollar limits the won’s recovery

The dollar’s renewed strength is creating headwinds for the won after its recent advance. Heightened geopolitical uncertainty has encouraged demand for the US currency, while concerns about renewed inflation could influence expectations for the Federal Reserve’s next policy decisions.

For USD/KRW, a rising exchange rate indicates that the won is weakening against the dollar. If US inflation proves persistent and markets anticipate a more restrictive monetary policy, US yields and the dollar could remain supported, making it more difficult for the won to extend its recovery.

However, the dollar’s direction will depend on the inflation data and the extent to which current policy expectations are already reflected in exchange rates. A softer-than-expected CPI report could reduce dollar demand and give the won room to recover.

Rising oil prices increase South Korea’s import burden

Brent crude has climbed above $106 per barrel, extending its gains for a third consecutive session amid renewed attacks on Saudi Arabia and uncertainty surrounding the reported energy truce between Russia and Ukraine.

For South Korea, which relies heavily on imported energy, sustained increases in oil prices can raise the cost of imports and place pressure on the trade balance. Higher energy bills can also increase inflation risks and complicate the economic outlook.

The latest escalation in geopolitical tensions therefore presents a double challenge for the won: it can support demand for the US dollar as a perceived safe-haven currency while simultaneously increasing South Korea’s energy costs.

If crude prices remain elevated, the currency may struggle to regain its recent strength. A reduction in geopolitical risk or a sustained retreat in oil prices, by contrast, could ease some of the pressure.

Semiconductor exporters provide an important source of support

Dollar selling by South Korean exporters has helped limit the won’s retreat. Semiconductor companies receiving overseas revenue may convert a portion of their dollar earnings into won to meet domestic expenses and manage their currency exposure.

These conversion flows can increase demand for the Korean currency and provide a counterweight to external pressure from a stronger dollar and higher oil prices.

The extent of this support will depend on the timing and size of exporter transactions. While such flows may help stabilise USD/KRW, they do not necessarily indicate a sustained change in the broader macroeconomic trend.

US inflation data could determine the next move

September US consumer price index data due this week will be a central focus for currency markets. The report could influence expectations for the Federal Reserve’s policy path, US Treasury yields and demand for the dollar.

A stronger-than-expected inflation reading could reinforce concerns that higher energy costs are feeding into broader prices. This could support the dollar and leave the won vulnerable to renewed selling.

A softer reading could have the opposite effect, easing pressure on US yields and encouraging investors to reassess dollar positions. In that scenario, continued exporter dollar selling could help the won recover further.

USD/KRW Technical Outlook

USD/KRW is trading around 1,342 after the won retreated from its strongest level since October 2024. The immediate question is whether the exchange rate stabilises around current levels or resumes moving higher as dollar demand strengthens.

The available market information does not establish verified technical support and resistance levels. Traders should confirm the latest swing highs, swing lows and moving averages against a current price chart before relying on specific levels.

Bullish scenario for USD/KRW

If US inflation surprises to the upside, the dollar remains firm and Brent crude continues to rise, USD/KRW could move higher as the won comes under renewed pressure. Persistent geopolitical uncertainty and an increased energy import burden would reinforce this scenario.

A sustained move above the latest trading range would strengthen the case for further won weakness, although the next technical targets require confirmation from current chart data.

Bearish scenario for USD/KRW

If US CPI comes in below expectations, US yields and the dollar could ease. Lower oil prices or signs of reduced geopolitical risk would also improve the external environment for South Korea.

In that case, exporter dollar selling could help USD/KRW move lower, signalling a recovery in the won. A sustained decline in the exchange rate would provide stronger evidence that the currency is regaining momentum.

Neutral scenario

USD/KRW could consolidate around current levels if opposing forces remain balanced. Dollar demand and high oil prices may limit the won’s upside, while semiconductor exporters’ currency conversions may prevent a deeper decline.

The US inflation release and developments in energy markets are likely to determine whether this consolidation develops into a more decisive move.

South Korean Won Forecast: Outlook for the Coming Sessions

The near-term outlook for the won remains cautious, with external conditions creating renewed downside risks after its recent recovery.

The most immediate pressure comes from rising oil prices and a firm US dollar. If elevated energy costs persist, South Korea’s import bill could increase, while renewed inflation concerns may keep the dollar supported ahead of the US CPI report.

Nevertheless, the won has an important source of support in exporter dollar selling, particularly from the semiconductor sector. These flows could limit further weakness and provide a foundation for recovery if US inflation data reduce expectations for restrictive Federal Reserve policy.

Three factors are likely to determine the next move:

• US CPI: A stronger reading could support the dollar, while a softer result could provide relief for the won.
• Oil and geopolitical developments: Further supply disruption or escalation could increase pressure on energy-importing economies. De-escalation and lower oil prices could ease that burden.
• Exporter flows: Continued conversion of overseas earnings into won could help limit USD/KRW gains.

For now, the balance of risks remains tilted towards renewed won weakness if the dollar and crude oil continue to rise together. A sustained recovery would require a more supportive combination of softer US inflation, easing energy prices and continued domestic demand for the Korean currency.

Analysis — Louis Roche, Today Markets

The won’s retreat illustrates how quickly currency momentum can change when external risks intensify. Its recent strength has been challenged by a combination of rising energy costs, geopolitical uncertainty and renewed dollar demand.

South Korea’s dependence on imported energy makes crude oil particularly important. Higher prices can place pressure on the trade balance, while the same inflationary shock may support the dollar if markets anticipate a more restrictive Federal Reserve.

However, the outlook is not one-sided. Semiconductor exporters’ dollar conversions can provide a meaningful source of won demand, and a softer US inflation report could weaken the dollar at a critical point for the exchange rate.

I would therefore focus on the interaction between US CPI, Brent crude and exporter flows rather than treating the recent retreat as confirmation of a prolonged weakening trend. Until those factors become clearer, USD/KRW remains vulnerable to sharp moves in either direction, with the next sustained trend likely to depend on whether external pressure outweighs domestic currency support.

Currency Hedger View

Movements in USD/KRW and energy prices can affect Korean importers, exporters and businesses with international supply chains. Companies paying for dollar-denominated energy or equipment may face higher local-currency costs when the won weakens, while exporters receiving dollar revenue may experience different effects depending on their operating expenses and hedging arrangements.

Currency Hedger monitors foreign exchange markets alongside broader commodity and macroeconomic conditions, helping businesses assess and manage their international currency exposure.

Open a Currency Hedger Account

Visit CurrencyHedger.com to learn more.

Disclaimer

This article is for informational and educational purposes only and does not constitute investment advice, financial advice or a recommendation to buy or sell any financial instrument. Foreign exchange and commodity markets can be volatile, and forecasts may not materialise. Market participants should conduct their own research and assess their risk tolerance before making trading or investment decisions.