Why the Korean Won Suddenly Strengthened Against the Dollar — Three Forces That Broke the Current Account Paradox (2026)

Note: This article was automatically translated from Korean by AI. All content refers to South Korea unless otherwise stated. See the Korean original for the most accurate reading.

Bottom line — South Korea’s current account surplus was at a record high while the won kept weakening against the dollar for months. In a single month, that paradox flipped completely.

The Korean won/dollar exchange rate, which had topped KRW 1,550 in early July, slid to the KRW 1,430 range by the end of the month — its lowest level in five months. This piece walks through why South Korea’s current account surplus and the exchange rate had been moving in opposite directions through May, and what broke that balance in the space of a month. Rather than just listing numbers, the focus here is on how each variable was entangled with the others. Simply noting that “the exchange rate fell” misses several things worth unpacking — that unpacking is the point of this article.

1. A Five-Month Reversal — the Numbers

South Korea’s Seoul foreign exchange market moved in two distinct phases in July. In the early part of the month, geopolitical risk originating in the Middle East pushed the won/dollar rate above KRW 1,550. Then, from the U.S. Federal Reserve’s FOMC decision to hold rates steady onward, the trend reversed, and by month’s end the rate had fallen to the mid-KRW 1,430 range. Multiple Korean outlets — Herald Business, Asia Economy, and Money Today among them — reported this as a “five-month low.” What stands out is that South Korea’s KOSPI stock index plunged sharply over the same period, yet the exchange rate fell anyway — normally, a sharp stock sell-off boosts demand for safe-haven dollars and pushes the exchange rate up, but this time the opposite happened. Market commentary described it as the “war premium being erased,” and foreign investors net-bought KRW 1.34 trillion (roughly USD 940 million) worth of Korean shares, supporting a floor under the won. On the surface this looks like a sudden shift within a single month, but it’s closer to pressure that had been building for months finally releasing all at once at a specific point in time. This article walks through, in order, where that pressure built up and why it released specifically in July.

2. The Anatomy of the Current Account Paradox — Why a Surplus Didn’t Move the Exchange Rate

According to preliminary balance-of-payments figures released by the Bank of Korea (한국은행 / BOK) on July 8, South Korea’s May current account surplus came to USD 38.61 billion — an all-time monthly record. That was driven by a record goods-account surplus, a narrower services-account deficit, and the primary income account swinging back into surplus. Cumulative surplus for January through May reached USD 141.3 billion, already surpassing all of 2025’s full-year surplus (USD 123 billion) in just five months. And yet, over that same period, the exchange rate actually faced upward pressure — a flow that runs counter to common sense, since a larger current account surplus should normally strengthen the won, not the opposite. The reason lies in the gap between “dollars flowing in” and “dollars counted as a surplus.” When exporters earn dollars abroad but leave them parked in offshore deposits or affiliate accounts rather than converting them into won, the current account statistics still record a surplus, but the actual dollar supply reaching South Korea’s domestic foreign exchange market doesn’t grow. That’s the source of the paradoxical structure where dollars are technically abundant yet the exchange rate keeps climbing. Ultimately, July’s reversal can be read as a signal that this “parked” dollar stockpile finally started moving. Gaps like this between the official statistics and the market aren’t unheard of, but a gap this wide is unusual. Think of it like a fat number showing up in your paycheck deposit that’s actually sitting in an account overseas you can’t touch — a surplus on the books and dollars in hand are two different things, and that distinction is the core of this paradox.

3. The Three Forces Behind the Reversal — ① The Fed’s Hold and Reassurance

The first force originates in the United States. The U.S. Federal Reserve held its benchmark rate at 3.50%–3.75% at its July FOMC meeting, and markets are pricing in a low probability of a further hike in September. That was read as a signal the Fed isn’t rushing to tighten further, and the dollar weakened broadly as a result. This was also the first FOMC press conference for newly appointed Fed Chair Wash [Korean media transliteration], which is part of why markets reacted so sensitively to every word. This dynamic connects to a variable this site flagged earlier in a piece on “Wash’s First FOMC Test” — the uncertainty flagged back then has, in practice, resolved toward easing. On its own, though, this force can’t explain a swing of more than KRW 100. The Dollar Index (DXY) itself only fell 0.2% over the same period. In other words, the “dollar weakening” share of the move is much smaller than the “won strengthening” share — and that’s explained by the next two forces. Honestly, looking at this data for the first time, it’s easy to mistake the Fed’s hold alone for driving a swing of more than KRW 100 — but once you isolate the DXY’s actual movement, that illusion falls apart quickly.

4. The Three Forces Behind the Reversal — ② SK Hynix’s KRW 45 Trillion ADR

The second force is a company-specific issue inside South Korea. SK Hynix (SK하이닉스), a leading Korean semiconductor maker, estimated the total value of its American Depositary Receipt (ADR) issuance at up to USD 30 billion — roughly KRW 45 trillion. As the company converts the dollars it raises into won, actual dollar-selling supply flows into South Korea’s foreign exchange market, and this conversion is set to proceed in stages from late July through September. Multiple outlets, including Global Economic and Investchosun, reported that expectations around this conversion repeatedly pulled the exchange rate down throughout July. On several specific days — July 21 and 24 among them — the rate fell in consecutive stretches, and each time, inflows tied to the ADR were cited as the background. What’s notable is that this money hasn’t fully arrived yet — meaning a significant portion of the current exchange-rate decline reflects “anticipation of something about to happen” rather than “something that has already happened.” The fact that one large company’s fundraising schedule can move a national currency’s exchange rate is itself evidence that South Korea’s foreign exchange market remains sensitive to specific events. The flow of large-scale fundraising tied to an improving semiconductor cycle is a positive signal in itself, but it also carries the uncertainty that the effect could reverse once the event concludes. This point connects to the counterargument covered further below.

5. The Three Forces Behind the Reversal — ③ Exporters Started Selling Their Dollars

The third force is closer to the actual key that unlocked the “current account paradox” described earlier. Pooling reports from the Korea Economic Daily and others, South Korean exporters who had been stockpiling dollars overseas expanded their “nego” (dollar-selling) activity starting in July. As the signal that the exchange rate had peaked and turned downward became clear, the incentive to sell before it fell further grew stronger. This is also a kind of herding dynamic — when the rate is rising, everyone tends to hold onto their dollars and wait, but the moment the direction flips, the rush to sell first from multiple sides compounds and accelerates the decline. Layered on top of that, a slowdown in foreign investors’ net selling of Korean stocks and solid macroeconomic indicators added further support under the won. Ultimately, the answer to the question raised in section 2 — why the exchange rate hadn’t fallen until now — lies in this section: the momentum behind stockpiling dollars broke, and the trigger points for that shift all converged in July. Personally, this third force looks like the most important of the three. The Fed and the ADR are closer to external, one-off variables, while the shift in exporters’ nego behavior is a behavioral pattern that can recur going forward. Whether this pattern — companies quickly ramping up dollar sales to cap the exchange rate’s upside — repeats the next time the rate turns higher will be the thing worth watching.

6. The Reversal by the Numbers — Three Factors Side by Side

The relative-impact bars are a visual translation of qualitative media assessments, not an official contribution breakdown.

Placing the three forces side by side, the ADR is the largest in raw scale, but in terms of durability, the third force — exporter nego activity — is the variable worth watching more closely. ADR conversion is effectively a one-off event that wraps up by September, while corporate nego behavior is a variable that can strengthen or weaken again each time the exchange-rate outlook shifts. The table below lays out the same trend by date.

7. The Counterargument — Will This Trend Continue?

Not everyone views won strength as an established trend. Tax Today (조세일보), a Korean outlet, reported a view that “the fear of KRW 1,600 has lifted, but a sustained strengthening trend is doubtful.” The reasoning is clear: a significant part of the current decline is leaning on a one-off event — SK Hynix’s ADR. Once the conversion scheduled through September wraps up, that force could fade, and if geopolitical risk around the Middle East or elsewhere resurfaces, safe-haven demand for dollars could return at any time. In fact, a consensus compiled by Bloomberg across 28 domestic and international financial firms projects the won/dollar rate at KRW 1,400 by December 2026 and KRW 1,350 by the end of 2027 — implying further weakening of the dollar against the won, but at a gradual pace, not a forecast for another sharp, near-term drop. This is a point where market participants themselves are divided, so it’s premature to settle firmly on either side. While the Fed’s hold lowered the odds of a September hike, there’s still room for the tone to turn hawkish again at a subsequent meeting and shift the trend back. In the end, it’s safer to view the current mid-KRW 1,430s level not as a “confirmed new equilibrium” but as a “window where several variables happened to align in the same direction.”

8. The Long View — Where Does This Structure Go Over the Next Decade?

Setting aside the short-term variables, this episode raises a different, more fundamental question. The practice among South Korean companies of leaving dollars they’ve earned parked overseas rather than bringing them home is structurally becoming entrenched. If the disconnect between the current account surplus and South Korea’s domestic foreign exchange supply keeps recurring, the reliability of the current account figure as a tool for the government and the Bank of Korea (한국은행 / BOK) to gauge or defend the exchange rate could come into question. Looking out ten years, two broad scenarios seem plausible. One is that companies’ practice of holding reserves offshore becomes the new normal, the gap between the reported surplus and actual exchange-rate movement becomes a permanent feature, and won volatility grows structurally larger as a result. The other is that, as happened this time, periodic large events — ADRs, overseas acquisitions, dividends from foreign subsidiaries — repeatedly bring dollars back into South Korea and restore balance. It’s hard to say now which path is more likely, but at least one thing is clear: this episode has dented the credibility of any approach that tries to predict the exchange rate’s direction from the current account surplus figure alone. For individuals, that narrows down to one practical takeaway: abandon the assumption that the exchange rate only moves in one direction.

FAQ

Q1. Should I convert currency or prepare funds for overseas travel now?

Bloomberg’s consensus year-end forecast of KRW 1,400 isn’t dramatically different from where things stand now. There’s no urgent reason to rush, but if you have a set future need, splitting your currency conversion into smaller amounts over time is safer than betting everything on one direction at once. This episode shows the exchange rate moves on the interplay of several forces rather than a single variable, so it’s better to avoid declaring any one point in time “the bottom.”

Q2. Will the rate rise again once SK Hynix’s ADR conversion finishes?

Once the conversion supply scheduled through September is exhausted, the downward pressure tied to it could ease. But since other variables — Fed policy, exporter nego activity — are acting simultaneously, it’s hard to say the rate will simply rebound the moment one factor ends. Watching how the remaining two forces behave once one of the three drops out is the way to gauge the next direction.

Q3. If the current account was in surplus, why didn’t the exchange rate fall sooner?

Because companies had been parking the dollars they earned overseas instead of converting them into won. This episode made it clear that a statistical surplus and the actual supply reaching the foreign exchange market are two different things. Going forward, it seems worth building the habit of checking not just the surplus figure at each current account release, but whether those dollars actually made it back into South Korea.

Q4. If I hold foreign stocks or dollar deposits, what should I do now?

Rather than selling or buying everything at once chasing short-term currency gains, it’s better to judge based on the asset-allocation plan you originally set. Keep in mind the exchange rate is a variable that, as seen here, can reverse direction within a single month. A realistic response is simply checking whether your dollar-asset exposure is overly concentrated around a single event.

Q5. Isn’t won strength bad news for exporters?

In the short term it can weigh on export profitability, but it also comes with the offsetting effect of lower costs for imported raw materials and components. The impact varies by sector and company, so it’s hard to call it uniformly good or bad. For a company like SK Hynix, which drove this decline through active offshore fundraising, the exchange-rate level at the moment of conversion directly affects its funding costs — that’s worth keeping in view too.

Closing — Watching How the Balance Breaks

This article is not a buy or sell recommendation — it’s a structural memo on July’s exchange-rate reversal, organized by timeline. How the current account paradox unwound, and how long that force will last, are questions that will keep needing to be checked going forward. Making careful decisions suited to your own financial plan and time horizon matters most.

Primary government source
Bank of Korea (한국은행 / BOK) — Press release, May 2026 Balance of Payments (preliminary)

Media sources referenced
Herald Business, Korea Economic Daily, Money Today, E-Today, Asia Economy, Seoul Economic Daily, Global Economic, Tax Today