Korean Won Stays Weak Despite Tariff Cuts and $350 Billion US Deal

A trade breakthrough meets persistent demand for dollars

South Korea's won closed at 1,424.4 per US dollar in Seoul at the end of the week before November 3, 2025, despite a trade agreement that cuts major US tariffs and spreads a large Korean investment commitment over several years. The currency briefly strengthened after the announcement, then traded in a narrow range near 1,420 to 1,430 per dollar as the initial relief faded.

The $350 billion package lowers tariffs on Korean autos and many other goods from 25 percent to 15 percent. It also limits annual cash investment payments to $20 billion, easing concern that Korea would have to provide a large amount of dollars at once. Those changes help exporters and reduce the immediate strain associated with the agreement, yet they leave a broader currency problem in place: Korean demand for dollars continues to exceed supply.

Korean institutions are buying overseas assets, companies need dollars for expansion abroad, and foreign investment entering Korean markets has not matched those outflows. A firm US dollar and a weakening Japanese yen have added pressure. The KOSPI stock index has received support from semiconductor and industrial companies, while the won has continued to struggle.

The exchange rate shows how many won are needed to buy one dollar. When that number rises, the won weakens. Its move above 1,400 in late September, after months in the upper 1,300s, therefore marked a loss of purchasing power against the dollar. The trade agreement improved one part of Korea's economic outlook, but the currency still reflects daily buying and selling across investment, trade and financial markets.

How the initial currency rally faded

Traders first responded to the announcement by reducing their estimate of the risk that Korea would need to send a large sum of dollars to the United States in a single payment. The annual cap offered reassurance, and the won strengthened briefly. As investors examined the package and the international backdrop, attention returned to sustained capital outflows.

The recent sequence helps explain why a positive trade headline produced only a short currency rally:

• For months before late September, the exchange rate was in the upper 1,300s per dollar.
• In late September, it crossed 1,400 and subsequently edged higher.
• After the trade announcement, the won strengthened as concern about a sudden dollar outflow eased.
• By the end of the week before November 3, it was trading near 1,420 to 1,430 and closed at 1,424.4.

Trading desks also described different pressures behind recent moves. They associated the rise from around 1,400 to approximately 1,420 with assessments of the size and timing of investment going to the United States. They linked a push toward 1,440 to Korean purchases of foreign securities that exceeded incoming foreign investment in Korean equities.

The $20 billion ceiling addresses the speed of payments under the agreement. Korea's regular overseas investments continue alongside that program. Dollars bought for pension portfolios, corporate projects and imported fuel can keep the exchange rate elevated even when a trade announcement improves confidence.

What the $350 billion package contains

South Korea and the United States divided the investment framework into $200 billion in cash investments and $150 billion for shipbuilding cooperation. The cash portion will be paid in phases, subject to a firm ceiling of $20 billion a year. The shipbuilding portion can include guarantees and financing rather than relying entirely on equity investments, which involve buying an ownership stake.

Korean officials have described $20 billion annually as the maximum that can be delivered without disrupting the domestic foreign exchange market. The limit replaces concern about faster deployment with a more gradual schedule. Spreading payments across several years gives authorities more room to manage periods of global financial volatility.

Shipbuilding guarantees and financing can support orders for Korean yards while reducing immediate dollar outflows. A guarantee provides backing for a financial obligation, while financing supplies funds for a project. These arrangements differ from paying the entire commitment in cash at the outset.

The package also includes conditions intended to protect investment returns. Profits will be divided equally until initial investments have been recovered, and only commercially viable projects are to proceed. The aim is to combine industrial cooperation with investments capable of generating returns, while limiting pressure on Korea's currency resources.

The structure resembles parts of the investment package the United States negotiated with Japan, but includes safeguards designed for the Korean market. The annual cash cap is central to those protections. It reduces the possibility of an abrupt drain without ending the longer flow of Korean capital abroad.

Tariff relief and the accompanying business commitments

Korean autos and auto parts will face US tariffs of 15 percent rather than 25 percent. The agreement also lowers the blanket tariff on many other Korean goods. For exporters, the reduction improves access to the US market and gives companies a clearer basis for planning sales and production.

Korean wood products and pharmaceuticals will receive the lowest tariffs among competing suppliers. Aircraft parts and some generic drugs will enter at zero tariffs. Korean semiconductor makers are to receive treatment that does not put them at a disadvantage to competitors in Taiwan.

Seoul also protected sensitive agricultural markets, including rice and beef, during negotiations over market access. The package therefore combines relief for industrial exports with the defense of agricultural interests at home.

Korea Gas Corporation, which is controlled by the government, agreed to buy about 3.3 million metric tons of US liquefied natural gas annually under long term arrangements. LS Group pledged $3 billion of investment by 2030 in US electricity grid infrastructure, including subsea cables.

HD Hyundai will work with a US investment firm on a $5 billion project to upgrade American shipyards and supply chains. The two governments also signed a memorandum to expand cooperation in strategic technologies, including artificial intelligence and work related to space.

These commitments broaden the agreement beyond tariff rates. They connect energy purchases, electricity infrastructure, shipbuilding and technology cooperation. For the currency market, their practical effect depends partly on when dollars are needed and how the investments are financed. Better access for Korean goods can support exporters, while building assets in the United States also creates financing needs.

How Seoul plans to fund the investment

South Korea plans to use operating income from foreign assets, including interest and dividends, to help finance the package. Officials have indicated that they do not intend to issue bonds backed by the government in the domestic market for this purpose. Policy banks can instead raise money abroad, reducing the need to buy dollars in Korea's domestic market.

The Export Import Bank of Korea is among the policy banks that regularly borrow foreign currency overseas. Using such channels would allow funding to come from offshore markets rather than concentrating demand in the domestic spot market, where currencies are exchanged for immediate delivery.

Income earned on foreign exchange reserves held by the Bank of Korea is another potential source of dollars. The policy approach described by officials would use that income to help meet needs and smooth volatility while preserving reserves and keeping daily market transactions smaller.

The precise disbursement schedule for the cash investment program had not been given as of November 3. Investors will therefore watch the choice of funding sources, the extent of any reserve use and the timing of payments. The annual cap provides a limit, while the implementation details determine how much pressure reaches the currency market at any particular time.

Public financing can also affect the won indirectly. Even when investment avoids large dollar purchases in the spot market, it may involve foreign exchange reserves or borrowing abroad backed by public entities. Investors monitor reserve levels and credit conditions. A decline in reserves or a rise in credit default swap spreads could discourage some foreign investment.

A credit default swap is a financial contract used to protect against a borrower failing to repay debt. A wider spread means that protection costs more. In the circumstances described here, higher costs would be another signal investors could consider when deciding whether to buy Korean assets.

Why US rates and Japan's yen matter

The US dollar has remained firm as investors reduced their expectations for an imminent Federal Reserve interest rate cut. Mixed US economic data and tariff developments pushed back the expected timing of the next reduction. Later cuts can make dollar investments more attractive and put pressure on currencies such as the won, which tend to react strongly to changes in market confidence.

Korea's policy rate is below the US federal funds rate, with the gap reaching as much as 1.75 percentage points. Higher returns available in the United States encourage some money to leave Korea. The interest rate difference therefore reinforces dollar demand already created by overseas investment.

The Bank of Korea faces difficult choices. Raising rates could support the won, but domestic growth has softened and household debt is high. Tighter policy would make borrowing more expensive during a weaker economic period, limiting the central bank's room to support the currency through interest rates.

Japan's currency has added another source of pressure. The Bank of Japan kept rates unchanged and remained cautious about further increases. A weaker yen often accompanies weakness in other Asian currencies as investors adjust portfolios and exporters change pricing and currency protection arrangements.

The won has continued to move with those regional forces. Yen weakness increased dollar demand across Asia in recent weeks, helping push Korea's exchange rate higher within the 1,400 range.

US and Chinese trade tensions remain part of the backdrop. The prospect of higher US tariffs on Chinese goods, together with China's restrictions on exports of key materials, has increased the extra compensation investors seek for taking regional risks. During periods of uncertainty, investors often hold more dollars and reduce exposure to smaller currencies, including the won.

Korean investors are sending more money abroad

Analysts estimate that Korean purchases of overseas securities this year are roughly four times the size of foreign inflows into Korean markets. That imbalance helps explain why incoming foreign investment can coexist with a weaker won: money entering Korea is outweighed by Korean money going elsewhere.

The National Pension Service and other large asset owners have a high share of equities in North America. Buying foreign assets requires dollars, and the size and regularity of institutional purchases can exceed foreign purchases of Korean stocks and bonds. Repeated transactions create persistent demand that a single trade announcement cannot reverse.

Households and companies add to the flow. Korean businesses are expanding in the United States to qualify for subsidies and operate closer to customers. Those projects require dollars for investment and business expenses.

Exporters and importers also influence the timing of currency supply. Some exporters retain dollar earnings longer when the won is weakening, reducing the dollars immediately available for sale. Importers may secure dollars early to protect themselves against further exchange rate increases.

Energy importers buying currency in advance can coincide with large funds purchasing overseas assets. When these needs arrive together, dollar supply becomes tighter. The resulting pressure reflects the timing and scale of transactions as well as the direction of trade and investment.

The KOSPI has benefited from the semiconductor cycle and the prospect of improved US access for auto and industrial companies. Foreign investors have at times remained net buyers of Korean assets. Those purchases, however, have not offset domestic investors' overseas allocations and corporate dollar needs.

Seoul's response and the costs of a weaker won

Korean policymakers are seeking to contain currency risk without relying on large direct market interventions. Their guidance points toward limited purchases of won in the spot market, with income from overseas assets and offshore funding helping manage dollar needs.

South Korea will provide US counterparts with more frequent information on currency market operations and limit direct intervention to periods of excessive volatility. The approach combines greater transparency with the ability to respond when market movements become disorderly.

No bilateral currency swap was included in the agreement. Such an arrangement would provide a channel for exchanging currencies between the participating authorities. Any future swap line would depend on market conditions and the final pattern of investment flows.

Authorities are also working to deepen the foreign exchange market, including a plan to extend trading to a format covering 24 hours. Greater liquidity and access could reduce episodes when trading is heavily concentrated in one direction. The changes could also help Korea's bid for inclusion in MSCI's Developed Market category.

A weaker won produces different effects across the economy. Exporters can benefit in accounting terms because dollar revenue converts into more won. Companies buying fuel or other inputs abroad face higher costs in local currency.

Higher import costs can add to inflation and reduce household spending power. Currency protection also becomes more expensive for some businesses, placing pressure on profit margins. Equity investors will watch whether those costs offset part of the benefit from improved US market access.

The Bank of Korea must account for these pressures when considering future rate cuts. Imported inflation may make reductions harder to deliver, even as weaker domestic activity argues for support. Currency weakness therefore reaches beyond financial trading into company costs, consumer budgets and monetary policy.

What could ease pressure, and what could worsen it

A durable move below 1,400 per dollar would likely require a better balance between dollar supply and demand. Clear payment schedules and slower disbursement within the investment agreement could ease immediate needs. A temporary pause in overseas allocations by large Korean funds would also reduce pressure.

Stronger foreign purchases of Korean stocks or bonds would bring more dollars into the market. Exporters selling more of their dollar earnings when the exchange rate is high could improve supply toward the end of the year. Steady official communication about funding and reserve use could help prevent rumors of large transactions from unsettling investors.

US developments remain just as relevant. A softer inflation reading or Federal Reserve communication pointing more strongly toward rate cuts could weaken the dollar. A steadier yen would remove another source of regional pressure, while progress in US and Chinese trade relations could encourage capital to return to Asia.

A credible emergency liquidity arrangement, such as a currency swap or a standing facility, could support confidence even if rarely used. Its value would lie in giving investors greater assurance that dollars would be accessible during stress.

Several risks could push the won in the opposite direction. An escalation in US and Chinese tariff actions could increase demand for dollars. A larger than expected reserve drawdown could bring credit rating pressure or wider credit default swap spreads, discouraging foreign purchases of Korean assets.

A sudden fall in the KOSPI could weaken confidence and accelerate outflows. Higher oil or gas prices would increase Korea's fuel import bill and energy companies' demand for dollars. If imported inflation leads the Bank of Korea to delay rate cuts, growth could soften further while the rate gap with the United States stays wide.

Shipbuilding and industrial projects also need to deliver commercially. Delays or weaker profits than planned would reduce the package's ability to support the economy in the near term. The agreement offers trade relief and a slower investment schedule, while the won's performance continues to depend on funding decisions, investment flows and global market conditions.

Key Points

• The won closed at 1,424.4 per dollar after trading near 1,420 to 1,430, despite initial gains following the trade announcement.
• US tariffs on Korean autos and many other goods fall from 25 percent to 15 percent.
• The $350 billion package includes $200 billion in phased cash investments, capped at $20 billion annually, and $150 billion for shipbuilding cooperation.
• Seoul plans to draw on income from foreign assets and offshore funding to reduce pressure on domestic dollar supply.
• Korean overseas securities purchases are estimated at roughly four times foreign inflows into Korean markets this year.
• A firm dollar, a weak yen and an interest rate gap of up to 1.75 percentage points continue to weigh on the won.
• Korea will share more frequent currency operation data and restrict direct intervention to excessive volatility. No bilateral currency swap was included.
• Stronger foreign inflows, slower dollar outflows, a steadier yen and softer US rate expectations could help the currency recover.