The won came back 115 against the dollar in a month, and not because the dollar weakened

The won, which was past 1,550 to the dollar in early July, had come back to 1,435 by the end of the month. That is 115 won in four weeks. Over the same stretch the dollar index fell only 0.2%. The dollar did not get cheaper. The won got more expensive.

Korean won likely to extend gains in H2 after hitting 11-week high (KED Global, 2026-07-24)

출처: kedglobal.com

KED Global lists stronger than expected growth, easing capital outflows, dollars arriving from semiconductor exports, the Bank of Korea's rate rise and a record current account surplus. Four of the five were already in place. The one that changed this month is the outflow.

Why did the won weaken while the surplus grew

Korea has been running its largest current account surplus on record this year. The January to May total of $141.3 billion passed the $123 billion full-year surplus of 2025, itself a record, in five months. And yet the rate was still above 1,550 in early July. A current account surplus is an amount booked as earned. It is not a statement that those dollars came home. When an exporter leaves the dollars it earned sitting in the US, the surplus grows and nothing is converted into won. When a foreign investor sells Korean shares and leaves, the dollars going out are cash. By the Bank of Korea's count, $110.2 billion left through equity sales between January and June. Put simply, the ledger showed a surplus while dollars were walking out the door.

What stopped

In the third week of July the foreign selling stopped. This looks less like heavy buying than like fast-moving money pausing. Once the cash stopped leaving, the surplus that had been piling up finally started to show in the rate. Rates came in on top of that. On July 16 the Bank of Korea raised its base rate from 2.50% to 2.75%. It was the first increase in three and a half years, since early 2023.

Bank of Korea raises rate, signals further tightening (UPI, 2026-07-16)

출처: upi.com

UPI reports the vote was unanimous, that June consumer prices ran 3.2% against a year earlier and core prices, stripped of food and energy, ran 2.5%. The governor said the existing 2.6% growth forecast now looked too low and could be revised substantially higher. If growth is running hotter than expected, the reasons not to raise again get thinner.

What the government did

On the supply side, the authorities moved. Smoothing operations, a joint inspection of foreign exchange dealings, and an extended exemption from the macroprudential levy came together. A smoothing operation is the authorities stepping into the market when the rate moves too fast, to slow it down rather than to set a level. The macroprudential levy is a fee banks pay when they borrow dollars abroad on short maturities, so extending its exemption releases a brake that had been held on short-term dollar borrowing. The joint inspection is a different kind of thing. Several agencies together look into illegal foreign exchange dealing by companies, and an exporter reads that as pressure not to sit on its dollars. The first two add to dollar supply. The last one asks for dollars already earned to be brought home.

So what will tell us which it was

In the end the question is one. Whether this is a record surplus finding its way into the rate at last, or a lull while foreign selling paused. The place to look is equity flows. If foreign investors return to heavy selling and the rate holds anyway, the surplus really is coming through. If the rate slides back as soon as selling resumes, this was a lull in the outflow and nothing more. Rates went up, but the real policy rate is still negative. Much of what is holding this rate up comes from what the authorities have asked for rather than from the market. It reads more accurately as a question of what stopped than of what improved.