[DigitalToday reporter Hyunwoo Choo] The won-dollar exchange rate is continuing a roller-coaster ride. The rate, which surged at the start of the year amid tariff uncertainty, fell to 1,473 won on springtime expectations of a U.S.-Iran ceasefire. It then jumped to an annual high of 1,562 won on June 5 as Middle East risks resurfaced. It has since slipped back to the 1,530 won range after news on June 18 of a U.S.-Iran MOU on ending the war.

It is unusual that the won alone remains at crisis levels even as the KOSPI breaks above 9,000 for the first time and the current account posts a record high. Britain's Financial Times (FT) recently called South Korea's surging exchange rate a mystery. It said it is difficult to explain why South Korea, the biggest beneficiary of a surge in semiconductor demand, is trading at exchange-rate levels seen during a foreign exchange crisis even after considering geopolitical variables such as the Middle East crisis and a spike in oil prices.

The cause is structural. Samsung Electronics and SK Hynix earn huge amounts of dollars from semiconductors, but unlike in the past they reinvest in U.S. data centres, overseas research and development (R&D) and mergers and acquisitions. That leaves dollars parked abroad. FT dubbed it a 'DRAM dollar' phenomenon, likening it to oil-producing countries' 'petrodollars'. U.S. stock investing by retail investors known as 'Seohak ants' and growing overseas investment by institutions such as the National Pension Service are also boosting demand for dollars.

Foreigners are also accelerating their exit from South Korean equities. Foreign investors have been net sellers for 20 straight sessions, pulling out a cumulative 70 trillion won. A reversal in potential growth rates between South Korea and the United States, and the interest-rate gap driven by the Bank of Korea's policy rate at 2.50 percent, more than 1 percentage point lower than the U.S. rate, are also drawing capital into dollars.

Authorities have moved to defend the currency. The National Pension Service began hedging currency risk by selling about $54 billion in dollar forwards, and the government tripled the issuance limit for foreign exchange stabilisation bonds. Experts said the 1,400 to 1,500 won range is likely to solidify as the 'new normal', but they added that two variables must be watched: additional upward pressure in July and August and expectations of interest-rate cuts in the second half.

Brad Setser (브래드 세서), a senior fellow at the Council on Foreign Relations (CFR), offered an optimistic view on the won-dollar exchange rate on his X account (Twitter). Despite the recent weakness, he suggested that South Korea's economic fundamentals are solid, citing a huge trade surplus and relatively low fiscal debt, and signalled expectations that long-term defence of the exchange rate would come into play.

Korea's won is incredibly weak (global financial crisis or Korean BoP crisis levels ... ) even though Korea's fundamentals are sound (BoP has a massive surplus, fiscal debt is modest, etc). Will be interesting to see if the Koreans can mount a defense this week ... 1/ pic.twitter.com/xlYwhJMuKe