On September 7, the South Korean won-to-US dollar exchange rate plummeted to the 1,330-won range for the first time in approximately two years, driven by heavy dollar-selling (nego) volumes from domestic exporters. However, the local currency pared some of its gains later in the session after reports emerged that the National Pension Service (NPS) had suspended its foreign exchange (FX) hedging operations, pushing the rate back up to the 1,340-won threshold. 

According to the Seoul foreign exchange market, the closing benchmark price for the won against the US dollar at 3:30 PM stood at 1,340.5 won, marking a sharp decline of 9.9 won from the previous trading day's same-time benchmark of 1,350.4 won. This extended the downward trend in the exchange rate to four consecutive trading days, during which the cumulative drop reached 29.9 won.

The session opened at 1,347.8 won, but the downward momentum accelerated quickly, dragging the rate below 1,340 won around 9:30 AM and hitting a daily low of 1,334.7 won by 10:00 AM. Compared to its recent peak of 1,559.2 won recorded on July 1, the won has appreciated by 224.5 won over a span of just two months. A drop into the 1,330-won range has not been observed since October 4, 2024 (1,331.3 won), representing a significant milestone in roughly one year and eleven months. 

Despite a major "surprise" in US employment data that typically favors a stronger dollar, the Korean won maintained robust strength. Data released on September 4 (local time) showed that US non-farm payrolls grew by 162,000 in August, significantly outperforming market consensus estimates of around 50,000. This boosted expectations for a potential Federal Reserve interest rate hike within the month, causing the US dollar index to strengthen globally. Nevertheless, continuous dollar inflows from semiconductor and other export-heavy corporations—bolstered by a solid current account surplus—overpowered external dollar-supportive factors.

Downward pressure on the exchange rate receded mid-morning when market participants learned that the National Pension Service had halted its FX hedging activities and stepped into dollar-buying. As a major player in the domestic foreign exchange market, the NPS had resumed forward short-selling to hedge currency risks back in June, when the exchange rate spiked aggressively toward the 1,500-won level. However, as the rapid surge in exchange rates stabilized and a sharp downward trend took hold, the market interpreted the NPS's action as a normalization of emergency defenses against won depreciation.

Lee Min-hyuk, an economist at KB Kookmin Bank, noted, "It is estimated that a substantial amount of NPS FX hedging volume was executed during the first half of the year. We view that the news of the hedging termination triggered a retracement in the exchange rate."

With the rate breaching the 1,370, 1,360, 1,350, and now 1,340-won levels over recent weeks, analysts suggest that psychological resistance is solidifying around the 1,330-won threshold due to the pension fund's intervention. Park Hyung-joong, an economist at Woori Bank, remarked, "Given that the National Pension has decided to temporarily halt FX hedging at the current level, the market is highly likely to perceive the 1,330-won range as a strong technical support line." 

Looking ahead, market watchers are closely monitoring upcoming monetary policy meetings from the European Central Bank (ECB), the Bank of Japan (BOJ), and the US Federal Reserve (Fed). With key officials from the ECB and BOJ maintaining hawkish stances, expectations for global monetary tightening are growing, which could reinforce dollar strength and prompt a technical rebound in the exchange rate.

Economist Lee Min-hyuk added, "If the Fed implements a rate hike, the downward bias of the exchange rate will partially halt, leading to a temporary rebound. However, even if it rebounds, a return to the 1,400-won range will be difficult, and it is likely to cap around the 1,360 to 1,370-won levels."

Meanwhile, foreign investors were net buyers in the domestic securities market (KOSPI), purchasing 2.5535 trillion won worth of equities. The dollar index, which measures the greenback's value against six major currencies, rose 0.10 to 99.097 as of 3:30 PM. The cross rate for the Korean won against 100 Japanese yen dropped 3.64 won to 860.98 won, while the yen-dollar exchange rate slipped 0.56 yen to 155.620 yen.

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