South Korea cracks down on foreign exchange speculation; won rebounds after hitting lowest level since 2009

After South Korean authorities announced a crackdown on forex speculation and rigorous investigations into market irregularities, the won rebounded significantly on Monday from its lowest point since 2009. However, analysts remain cautious about whether this round of recovery can be sustained.

The Korean won rose as much as 1.6% against the US dollar to 1533.65, after last week dropping to its lowest level since the global financial crisis. On Sunday, the Ministry of Finance convened an emergency meeting with the Bank of Korea and financial regulators, followed by a series of countermeasures, including strengthening regulation of offshore forex derivatives, investigating suspected market irregularities, and thorough scrutiny of potential illegal forex transactions.

Latest updates show that Korean pension funds are engaging in forex hedging operations to support the won.

Gyeong-won Min, an economist at Woori Bank in Seoul, said that the relevant measures "seem to temporarily cool the overheated bullish sentiment for the US dollar," but whether this will last is "still uncertain." He added that, considering oil prices and US Treasury trends, the possibility of the dollar-won exchange rate breaking above 1600 "cannot be excluded for now."

Stephen Lee, an economist at Meritz Securities in Seoul, pointed out that whether the won can sustain its rebound depends on whether the authorities "can turn words into real action"—"If they don’t want to be seen as just standing by, they must take more steps, not just make statements. Ultimately, this requires effective expectation management."

Offshore Derivatives Become Regulatory Focus

South Korean authorities stated that they will focus on reviewing offshore non-deliverable forward (NDF) transactions, believing that one-sided positions in this market have distorted domestic trading, and pledged to enhance transparency and encourage trading activity to shift onshore.

The Bank of Korea and the Financial Supervisory Service will jointly conduct special investigations to assess whether speculative trading or suspected market manipulation have worsened the decline of the won, and warned that any violations will be punished severely. Regulators will also examine whether importers and exporters are profiting from the won’s depreciation by speeding up payments or delaying receivables.

This move continues a series of recent measures by Korea to stabilize the currency. Previously, authorities allowed the National Pension Service to expand forex hedging and relaxed rules to improve dollar liquidity. Korea is among a growing number of Asian nations taking proactive action to stabilize their local currencies.

According to media reports citing sources, Korean pension funds are carrying out forex hedging operations to support the won. A National Pension Service spokesperson declined to comment.

The won has been under pressure for about a year, mainly due to uncertainty over a potential Korea-US trade agreement and continued global fund outflows from Korean stocks. Rising energy costs related to Iran conflicts have further increased pressure, making the won one of Asia’s worst-performing currencies. Against this backdrop, the NPS’s entry is seen as a signal of authorities mobilizing domestic institutions to stabilize the exchange rate.

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