The dollar is stronger and the euro has hit its weakest level in 17 months, yet only the won has strengthened. Doesn't the won normally weaken when the dollar rises?
2026-10-06
The dollar's strength comes from Europe, and the won moved on its own
The dollar index rose into the 102 range, its highest since April 2025 (Reuters-affiliated report, 2026-10-05). On the same day USD/KRW fell to 1,340.81 (-1.45%). The reason the dollar is strong and the reason the won is strong are different.
- The cause of dollar strength is France. French 10-year yields are the highest since 2002, and the spread to Germany widened 34bp in a week, the largest weekly rise in 17 years. The gap of about 140-150bp is the widest since the 2011 fiscal crisis (Yahoo Finance, Reuters, 2026-10-04). French government debt is 119% of GDP, and next year's medium- and long-term bond issuance plan is about EUR 340 billion. When the euro weakens, the dollar index, with its large euro weighting, rises mechanically.
- The cause of won strength is exporters' dollar selling. September exports rose 83.5%, well above the market forecast (+62.5%), and exporters sold dollars to spend their overseas earnings on domestic capital investment, which supported the won. The government's cut in October bond issuance from KRW 17 trillion to KRW 12 trillion also contributed (Commerzbank, FXStreet, 2026-10-05).
That is, this dollar strength is relative strength from euro weakness, not a flight to safety, and Korea received a separate source of demand, export proceeds, outside it.
What the report did not say
This setup is not permanent. A considerable part of the won's strength came from a flow of dollar-selling volume. Commerzbank sees it as hard for the gain seen in the third quarter to repeat as is (FXStreet, 2026-10-05). The oil price cap and food subsidies to ease inflation are also temporary factors. On the other side are the US 10-year in the 5.3% range and a widening Korea-US rate gap.
A stronger won cuts profit estimates for exporters such as Samsung Electronics. Even when Korean exports set records, the exchange rate takes part of the profit. For foreign investors, a stronger won creates currency gains and an incentive to buy, but in practice they sold more than KRW 20 trillion in a month. That means the exchange rate does not explain foreign flows.
Scenarios
| Path | Condition | USD/KRW |
|---|---|---|
| Status quo | Strong exports, French anxiety persists | Range of 1,340-1,380 |
| Return of won weakness | Exporter selling exhausted, US rates rise further | Rebound above 1,380 |
| Weaker dollar | French anxiety calms, Fed hawkishness recedes | Into the 1,300s |
The ranges above are a judgment based on the exchange-rate movements confirmed in this research and give no probabilities. Exchange-rate forecasts differ by institution, and it is hard to be definitive from this material alone.
What investors should do
- For those holding US stocks and ETFs, now, with the won strong, is a zone of low conversion cost. Convert in installments rather than all at once.
- For Korean stocks with a high export share, also check the exchange-rate assumptions in earnings releases.
- If the French bond spread widens beyond 150bp, treat it as a sign that dollar strength and European asset weakness will continue. If you hold European stocks or euro-denominated assets, use this line as a checkpoint.