The South Korean won has crashed to a record low as the US dollar gained momentum and the country’s political crisis remained. The USD/KRW exchange rate rose to a high of 1,486, a record high, and then pared back some of these gains to 1,470.
South Korea political and economic crisis
The USD/KRW pair has soared because of the ongoing South Korean economic and political crisis.
The political crisis culminated in the impeachment of the last South Korean President, Yoon Suk Yeul for declaring a state of emergency.
Han Duck-Soo, the acting resident since December 14, replaced him. Now, there are signs that the country’s opposition party is working to impeach Soo for his actions during the state of emergency.
Duck-Soo was the prime minister then and will likely be accused of being an accomplice to Yeul. If he is impeached, and if Yeul loses during the constitutional court, it means that South Korea will go to an election in the next 60 days.
Therefore, the South Korean won has plunged because of the potential political uncertainty in the country.
The USD/KRW pair has also surged because the economy is not doing so well because of Samsung, the biggest company in the country. Samsung Electronics’ stock price has crashed by almost 40% from the highest point this year as it continued to lag behind other semiconductor giants like Taiwan Semiconductor and NVIDIA on artificial intelligence.
Samsung’s performance is important because it accounts for about 22.4% of the country’s GDP and employs over 130,000 people.
Other South Korean companies are facing challenges because of the resurgence China, which has now become a leading player in the auto industry. That will ultimately affect companies like Hyundai, Renault, and Samsung, which sell many vehicles abroad.
The most recent data showed that South Korea’s economy barely grew in the third quarter as its exports dropped. Consumer spending growth partially offset exports as wages in the country grew.
Therefore, the South Korean central bank will likely maintain robust expansionary policies in the next few months. It has already pumped over $47 billion to the economy and started cutting interest rates. It lashed rates to 3%, and analysts see more cuts happening soon.
The USD/KRW pair has also surged because of the ongoing strong US dollar. The dollar index, which tracks the greenback against several developed world currencies, has jumped to the highest level in over two years after the hawkish Fed. US bond yields have also soared, a sign that investors anticipate the Fed to be more hawkish.
The South Korean won’s plunge is also in sync with other emerging market currencies like the Brazilian real and Indian rupee that have reacted to Donald Trump’s election.
USD/KRW technical analysis
The daily chart shows that the USD/KRW exchange rate has been in a strong uptrend this year and now sits at a record high. It has jumped above the key resistance level at 1,400, the highest swing in April this year.
The pair has constantly remained above all moving averages, which is a positive sign. Also, the Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed upwards and become overbought.
Therefore, the most likely scenario is where the South Korean won rises gradually rises as these concerns continue. The pair will then drop in 2025, potentially to the support at 1,400. This is a common occurrence, where an asset makes a strong bullish breakout and then resumes the downtrend and retests the key support level.
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