🚨 Korean Won Weakness Continues and International Oil Price Trend Analysis
Today Korean Economic News | 2025.02.01
📌 KRW/USD Exchange Rate at 1,452.80 Won... Yen, Euro, Yuan, Oil Prices
💬 The KRW/USD exchange rate recorded 1,452.80 won as the Korean won continues to weaken. The value of the Korean won against major currencies such as the yen, euro, and yuan is showing a continuous downward trend. Meanwhile, international oil prices showed a downward trend, with West Texas Intermediate (WTI) futures at $72.73 per barrel (-$1.89) and Brent crude at $76.87 per barrel (-$1.42).
1️⃣ Simple Explanation
The KRW/USD exchange rate has recorded 1,452.80 won, indicating that the Korean won is weakening. At the same time, international oil prices are showing a downward trend. Let's examine what these phenomena mean for our economy and daily lives.
What does an exchange rate of 1,452.80 won mean? Simply put, it means that 1,452.80 won is needed to buy one dollar. As this figure increases, the value of the Korean won decreases and the value of the dollar increases. The fact that the exchange rate has risen from the 1,300 won range to the 1,450 won range means that more Korean won is needed to purchase the same one dollar.
This weakening of the Korean won applies to other major currencies as well, such as the yen, euro, and yuan. It's similar to your allowance being able to buy fewer items than before.
How does the weakening of the Korean won affect our lives? If you're planning to travel abroad, you'll receive less foreign currency for the same amount. For example, with 1 million won, you could previously receive about 770 dollars, but now you can only receive about 690 dollars. Also, the prices of imported products are likely to rise. This means that electronic products, clothing, food, etc., imported from overseas may become more expensive.
On the other hand, the weak Korean won could be advantageous for export companies. This is because the value of dollars earned from foreign countries becomes higher when converted to Korean won. There is a possibility that the profitability of large export companies such as Samsung Electronics and Hyundai Motor may improve.
Meanwhile, what does the fall in international oil prices mean? When oil prices fall, Korea, which imports and uses oil, can generally benefit. Prices of petroleum-related products may stabilize, logistics costs may decrease, and production costs for businesses may decrease. However, it should be considered that these benefits of falling oil prices may be partially offset by the weakening of the Korean won. That is, even though oil prices have fallen, the amount to be paid in Korean won may not decrease significantly.
2️⃣ Economic Terms
📕 Exchange Rate
Exchange rate refers to the ratio at which one country's currency is exchanged for another country's currency.
- A KRW/USD exchange rate of 1,452.80 won means that 1,452.80 won is needed to obtain one dollar.
- Exchange rate increases (Korean won weakness) serve as factors strengthening export competitiveness and increasing import prices.
📕 Korean Won Weakness
Korean won weakness refers to the phenomenon where the value of the Korean won falls compared to other currencies.
- Global dollar strength, forecasts of slowing Korean economic growth, and worsening trade balance can act as factors for Korean won weakness.
- Korean won weakness is favorable for export companies but acts as a factor for increased import costs and inflation pressure.
📕 International Oil Prices
International oil prices are the prices of crude oil traded in international markets, a major indicator that affects the global economy and prices.
- They are determined by various factors such as oil demand and supply, geopolitical factors, and speculative fund inflows.
- Falling oil prices become a factor alleviating inflation pressure due to reduced energy costs.
📕 WTI and Brent Crude
WTI (West Texas Intermediate) and Brent crude are representative types of crude oil that serve as benchmarks in the international oil market.
- WTI is a light crude oil produced in the Texas region of the United States and serves mainly as a benchmark for the US market.
- Brent crude is oil produced in the North Sea and is used as a major benchmark for European and Asian markets.
3️⃣ Principles and Economic Outlook
💡 Structural Causes and Outlook for Korean Won Weakness
The phenomenon of the Korean won continuing to weaken with the KRW/USD exchange rate at 1,452.80 won is influenced by multiple factors.
First, the global dollar strength trend continues. The relative robustness of the US economy, safe-haven asset preference, and interest rate differentials are supporting dollar strength. Especially in a situation where the monetary policy of the US Federal Reserve (Fed) still remains relatively tight, other major countries are initiating interest rate cuts, maintaining interest rate differentials. This environment increases demand for the dollar and acts as a factor weakening the value of other currencies, including the Korean won.
Second, there are concerns about the weakening growth momentum of the Korean economy. The growth outlook for the Korean economy is uncertain due to global economic slowdown, delayed recovery in key industries such as semiconductors, and weak domestic demand. As economic growth forecasts are revised downward and export recovery proceeds slowly, the investment attractiveness of the Korean won is decreasing. The trend of net selling by foreign investors in the Korean stock market is also one of the factors affecting the weakening of the Korean won.
Third, geopolitical risks and global uncertainties are increasing. Various geopolitical factors such as escalating tensions in the Middle East, continued US-China trade conflicts, and global supply chain reorganization are increasing uncertainty. In this situation, investors tend to prefer the safe-haven dollar, which leads to selling pressure on emerging market currencies, including the Korean won. Particularly, Korea is in a geopolitically sensitive position, so its currency value tends to be more significantly affected when global risk aversion psychology strengthens.
Fourth, fundamental factors such as trade balance and current account also affect Korean won weakness. Korea's trade balance is showing an improving trend, but it still has high volatility and the recovery trend is not solid. Additionally, the current account surplus size being reduced compared to the past due to fluctuations in raw material prices and service account deficits is also burdening the value of the Korean won. Especially in a situation where volatility in international oil prices and raw material prices is increasing, the possibility of worsening trade conditions can also be seen as a factor for the decline in the value of the Korean won.
The future outlook for the value of the Korean won will be determined by the direction of change in these factors. In particular, the direction of the US Federal Reserve's interest rate policy, whether the Korean economy recovers its growth momentum, and the development of global geopolitical risks will be important variables. In the short term, the Korean won weakness trend is likely to continue, but if the US begins interest rate cuts, global uncertainties are reduced, and Korean exports show a clear recovery, a foundation for the gradual recovery of the Korean won value could be established.
💡 International Oil Price Decline and Global Oil Market Trends
The phenomenon of international oil prices showing a downward trend is a result of the complex interaction of oil market supply and demand conditions and global economic outlook.
First, global oil demand forecasts are weakening. Growth slowdown forecasts for major economies, particularly the weakening economic growth momentum of China, the world's largest oil consumer, are becoming factors for downward adjustment of oil demand forecasts. Major institutions such as the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) are also forecasting that global oil demand growth will slow down. These demand weakening forecasts act as downward pressure on oil prices.
Second, oil production from non-OPEC countries, centered on the United States, is increasing. The United States' shale oil production continues to increase, contributing to global oil supply. Additionally, production increases from non-OPEC countries such as Brazil and Guyana are also affecting the overall supply increase. This increase in production from non-OPEC countries partially offsets the effect of OPEC+'s production cut policy and becomes a factor exerting downward pressure on oil prices.
Third, despite OPEC+'s production cut policy, supply concerns are easing. OPEC+ continues its production cut policy to stabilize the oil market, but there are suggestions that the compliance rate of production cuts by some member countries is decreasing and the scale of production cuts might be reduced from initial expectations. Additionally, despite geopolitical risks, significant disruptions in oil supply from the Middle East region have not actually occurred, showing a partial resolution of the risk premium.
Fourth, psychological factors in the oil market and movements of speculative funds also affect oil price fluctuations. Factors such as concerns about global economic slowdown and dollar strength are weakening investment sentiment in the crude oil futures market. Particularly, dollar strength makes the price of crude oil traded in dollars relatively expensive for countries using other currencies, acting as a factor suppressing demand. Changes in speculative positions are also factors expanding short-term oil price volatility.
In this background, the decline of WTI to $72.73 per barrel and Brent crude to $76.87 per barrel suggests that concerns about demand weakening are being reflected more significantly in the market than supply-side risks. The future outlook for oil prices will be determined by global economic conditions, OPEC+'s policy responses, and the development of geopolitical risks. In particular, US and Chinese economic growth trends, whether OPEC+ implements additional production cuts, and changes in tensions in the Middle East region are expected to be major variables for oil prices.
💡 Impact of Korean Won Weakness and International Oil Price Fluctuations on the Korean Economy
The simultaneous occurrence of Korean won weakness and international oil price declines is expected to have complex effects on the Korean economy.
First, there is the impact on exports, imports, and trade balance. Korean won weakness can basically have a positive impact on exports by strengthening the price competitiveness of export companies and increasing the Korean won conversion amount of foreign currency earnings. On the other hand, it acts as a factor for increasing import prices due to increased import costs. In this situation, falling oil prices can partially offset the increase in import costs due to Korean won weakness by decreasing energy-related import costs. Particularly, as Korea is a country with high dependence on crude oil imports, it can greatly benefit from falling oil prices. However, it should be considered that the benefits of falling oil prices may be reduced if Korean won weakness continues.
Second, there is the impact on prices and consumer purchasing power. Korean won weakness can act as overall inflationary pressure through increased import prices. This becomes a factor reducing real purchasing power of households and limiting consumption capacity. On the other hand, falling oil prices contribute to price stability through reduced energy costs and have the effect of easing energy expenditure burdens for households and businesses. As these contrasting effects offset each other, the actual impact on prices may be limited, but differentiated effects by item are expected.
Third, there is the impact on corporate performance and by industry. Korean won weakness can have a positive impact on the profitability of export-centered companies, especially key export industries such as semiconductors, automobiles, shipbuilding, and steel. On the other hand, industries highly dependent on imported raw materials may face increased cost burdens. Falling oil prices become a factor improving the cost structure of energy-intensive industries, petrochemicals, and transportation. Industries sensitive to oil price fluctuations such as aviation, shipping, and logistics can see profitability improvement effects. Thus, the impact of Korean won weakness and oil price declines will appear differentiated by industry and company.
Fourth, there is the impact on financial markets and capital flows. Korean won weakness can decrease the attractiveness of Korean assets for foreign investors in the short term. Especially when concerns about foreign exchange losses increase, the possibility of foreign capital outflow increases. On the other hand, falling oil prices can act as a factor improving the fundamentals of the Korean economy, an oil-importing country, potentially increasing investment attractiveness in the medium to long term. Additionally, expectations of improved performance of export companies due to Korean won weakness can positively affect the stock market, but these effects may be offset by other factors such as global financial market flows and foreign investment trends.
Overall, the simultaneous occurrence of Korean won weakness and oil price declines provides both opportunities and challenges for the Korean economy. The benefit of falling oil prices in terms of reduced energy import costs can partially offset the increased import costs due to Korean won weakness, but if Korean won weakness becomes too severe, economic instability may actually increase. Additionally, the advantage of strengthened export competitiveness due to Korean won weakness may be limited due to weakened global demand. Ultimately, strategic responses from businesses and policy authorities are important to positively utilize the impact of these external variables.
4️⃣ In Conclusion
The KRW/USD exchange rate of 1,452.80 won and the decline in international oil prices show that uncertainty and volatility in the global economic environment are increasing. This situation provides both opportunities and challenges for the Korean economy, and strategic responses from each economic agent are important at this point.
From a business perspective, differentiated strategies according to exchange rate and oil price fluctuations are needed. Export companies need to seek strategies to increase price competitiveness and expand overseas market share by utilizing Korean won weakness as an opportunity. At the same time, risk management for exchange rate volatility needs to be strengthened. For domestic companies, it is important to optimize cost structures and find alternative supply chains to ease cost pressures in response to increased import costs. For energy-intensive industries, strategies to improve cost structures and strengthen competitiveness by utilizing the opportunity of falling oil prices will be effective.
From a consumer's perspective, consumption plans need to consider the simultaneous occurrence of imported goods price increases due to Korean won weakness and energy cost decreases due to falling oil prices. If you have plans to travel abroad or purchase imported products, it may be advantageous to adjust the timing considering exchange rate trends. Also, maintaining rational energy consumption habits to maximize the effect of reduced energy costs is important. In the long term, financial planning considering the impact of Korean won value and oil price fluctuations on household finances is necessary.
Investors need to comprehensively consider the impact of exchange rate and oil price fluctuations on asset values. Korean won weakness can positively affect the performance of export-centered companies but also increases the risk of foreign exchange losses. Falling oil prices are favorable for energy-consuming companies but burdensome for energy-producing companies. Portfolio diversification and exchange risk management considering these complex effects are important. Also, flexibility to adjust investment strategies in a timely manner by closely monitoring global macroeconomic flows and financial market trends is necessary.
From a policy authority's perspective, it is important to manage the impact of Korean won weakness and oil price fluctuations on macroeconomic stability. Excessive exchange rate volatility can increase economic uncertainty and exacerbate inflationary pressures, so foreign exchange market stabilization measures could be considered if necessary. Policy approaches to support the benefits of falling oil prices to spread evenly throughout the economy are also worth considering. Additionally, as the dual effects of Korean won weakness and falling oil prices may appear differentiated by industry and social class, selective support and monitoring for vulnerable sectors are necessary.
In conclusion, changes in the external environment such as Korean won weakness and international oil price declines are having complex effects on the Korean economy. To utilize these changes as opportunities, situation-specific response strategies from each economic agent are important. Especially in a situation where global economic uncertainty is increasing, structural responses for long-term competitiveness enhancement should be pursued along with risk management for exchange rate and oil price volatility. Rather than reacting excessively to short-term volatility, a strategic approach to use this environment as an opportunity to improve the constitution of the Korean economy and industrial structure is needed at this point.