The South Korean won/US dollar exchange rate, which has taken a brief breather amid Middle Eastern turmoil, is now under scrutiny for future volatility.

Amid continued upheaval in the Middle East, the KRW/USD exchange rate on the 20th failed to establish a clear direction during the session and ultimately closed slightly lower.

On that day, in Seoul’s foreign exchange market, the won against the U.S. dollar (the intraday transaction closing price as of 3:30 pm) closed at 1,477.2 won, down 6.3 won from the previous trading day. After opening at 1,479.5 won (down 4.0 won), the exchange rate did not see any notable further decline or rebound during the session and fluctuated within a relatively limited range. The foreign exchange market in recent days has been highly sensitive to geopolitical risks in the Middle East and the resulting volatility in international oil prices.

The backdrop is the escalation of tensions caused by the approaching deadline for a ceasefire between the U.S. and Iran. Over the weekend, Iran first said it would reopen the Strait of Hormuz, but a day later it changed its position, announced a blockade, and heightened market uncertainty. The Strait of Hormuz is a key corridor for transporting crude oil from the Middle East; concerns that shipping passage through the region may be disrupted directly affect oil prices, the value of the U.S. dollar, and the overall trend in Asian foreign exchange markets. In fact, during the night trading on the 17th, the won against the U.S. dollar plunged by more than 20 won at one point on news that the strait would reopen, but later reports that the Iranian military had hardened its stance allowed it to recoup most of the losses.

As the ceasefire deadline set for the 21st approaches, the U.S. and Iran are conducting negotiations while also applying pressure. U.S. President Donald Trump said that a delegation sent for final negotiations is heading to Pakistan, but he also warned that if Iran does not agree to the deal, it could destroy its critical infrastructure. However, the market also reflected both the possibility of negotiations and the risk of conflict, and sentiment marked by excessive volatility eased somewhat. With the Strait of Hormuz possibly reopening at one point, WTI crude oil futures briefly approached $90 per barrel, before slipping slightly to the mid-to-high $80s that day; the U.S. Dollar Index, which measures the value of the dollar against six major currencies, rose by only 0.08% to 98.281.

In the domestic financial market, foreign investors net sold 159 billion won in the securities market, but the Korea Composite Stock Price Index (KOSPI) closed at 6,219.09 points, up 27.17 points (0.44%). In terms of the exchange rate, forecasts suggest that the U.S. dollar selling orders from export companies may flow back into the market. Min Gyeong-won, an economist at Woori Bank, analyzed that if the market broadly reaches a consensus that the exchange rate will gradually stabilize in the 1,400-won range, there is a high likelihood that export companies will restart selling the U.S. dollars they hold. Meanwhile, the yen against the dollar rose 0.18% to 158.864 yen; the KRW/JPY cross rate was 929.20 won per 100 yen, down 1.01 won from the previous trading day’s 3:30 pm benchmark price.

Ultimately, the foreign exchange market on that day caught a brief break as geopolitical tensions and expectations of reduced risk collided. This trend may swing significantly again depending on the progress of negotiations after the U.S.-Iran ceasefire deadline, the status of shipping passage through the Strait of Hormuz, and further changes in international oil prices. If instability in the Middle East becomes prolonged, pressure for won depreciation may increase; conversely, if tensions ease, the exchange rate that has risen recently is also expected to gradually return to a stable range.