Korean Won Slides Past 1,380 per Dollar After Hawkish Fed Rate Hike

The South Korean won weakened past 1,380 per US dollar on Thursday as investors responded to a Federal Reserve interest-rate increase and signals that American borrowing costs could rise again this year.

The won opened at 1,377.0 per dollar in Seoul and fell as low as 1,382.1 during early trading. The move came alongside a broader advance in the US currency, with the dollar index climbing above 100 for the first time since August 13. The index measures the greenback against a basket of six major currencies.

The Federal Reserve raised its target range for the federal funds rate by 25 basis points to 3.75 percent to 4.00 percent at its September meeting. The decision, backed by all 12 voting members, marked the first US rate increase since July 2023. The central bank also left open the possibility of another increase before the end of the year, reinforcing expectations that monetary policy will remain restrictive.

Updated projections added to the market's hawkish interpretation. The median forecast for the policy rate at year-end rose to 4.1 percent, 0.3 percentage points higher than the projection issued in June. Twelve policymakers expected a year-end range of 4.00 percent to 4.25 percent, while four projected 4.25 percent to 4.50 percent. Only two expected rates to remain at the newly established level.

The Fed also revised several economic forecasts. It increased its estimate for personal consumption expenditures inflation this year by 0.1 percentage point to 3.7 percent and raised its real gross domestic product growth forecast by the same amount to 2.3 percent. Its projected unemployment rate was lowered by 0.2 percentage points to 4.1 percent.

For South Korea, a stronger dollar can intensify pressure on the won and complicate the domestic monetary-policy outlook. Some foreign-exchange market participants said the won could approach 1,400 per dollar in the near term if the dollar rally continues. They pointed to the Fed's unanimous decision and the prospect of an additional hike as stronger signals than markets had anticipated.

Other participants cautioned that the won's decline could be limited because investors had already priced in much of the expected US tightening. The relatively muted response in US Treasury yields suggested the Fed's action was not viewed as an entirely new shock. Even so, Thursday's move underscored how shifts in US interest-rate expectations can quickly affect Korean currency markets.