The Korean won had its strongest month in more than fifteen years in July, rebounding hard against the dollar as a wave of fresh dollar supply washed through the market. By the close on July 31 the currency stood at 1,424.0 to the dollar, up sharply from where it began the month.
The scale of the move was unusual. The won gained 125.4 won over the month, an appreciation of 8.81 percent from the 1,549.4 level at which it ended June. It was the currency's biggest monthly advance since March 2009, when it strengthened 150.5 won in the depths of the global financial crisis.
A month that turned on its head
The turnaround was all the more striking given how the month began. On July 1 the won sank to 1,559.2, its weakest point of the month, before reversing course and climbing steadily. The final stretch was the most dramatic, with the currency adding 42.6 won over the last five trading days alone.
Dollars pour back in
Behind the rally was a simple shift in supply. Exporters, buoyed by strong semiconductor sales, converted more of their dollar earnings into won, and a single corporate event added a flood of its own. SK hynix raised roughly 40 trillion won, about 26.5 billion dollars, through an American depositary receipt offering in July, and the conversion of those proceeds put heavy downward pressure on the dollar.
The other side of the ledger helped too. Foreign investors, who had been dumping Korean stocks, slowed their exit. Net sales of KOSPI shares fell to 17.1 trillion won in July, down from 44.5 trillion in May and 48.4 trillion in June, easing a steady source of dollar demand that had weighed on the won for months.
A central bank leaning in
Monetary policy reinforced the move. The Bank of Korea raised its benchmark rate by a quarter point to 2.75 percent on July 16, a step that tends to support a currency by making local assets more attractive to hold. The tightening arrived just as the supply picture was already turning in the won's favor.
How far it can run
Analysts see room for further strength, with caveats. Moon Da-woon of Korea Investment and Securities said the lower end of the won-dollar range was likely to move lower through August, and pegged a fair-value band for the second half of the year at 1,410 to 1,560, while allowing that the won could push into the 1,300 range.
The optimism is hedged for good reason. A rebound driven partly by one-off flows can fade, and expectations of further US rate moves, together with the appetite of Korean retail investors for dollars, could pull the currency back. For now, though, a market that spent much of the year fretting about a weak won has watched it stage its sharpest recovery in a generation.