The won/dollar exchange rate has fallen to its lowest level in 13 months, while the Institute of International Finance (IIF) projects that the Korean won could recover to levels near early 2020. In its report, "A Brighter Outlook for the Korean Won," released on the 25th, the IIF forecast South Korea’s current account surplus at 10% of GDP by next year and said the prospect of further won appreciation had increased. The report attributed the won’s weakness from last year through the first half of this year to yen weakness, greater overseas investment by South Korean residents and foreign net selling of South Korean stocks. It said the won began diverging from the yen in July after Samsung Electronics and SK Hynix announced an 800 trillion won, or approximately $583.3 billion, domestic semiconductor production investment plan in late June. The anticipated conversion of export proceeds into won for domestic projects has shifted market expectations, even if the companies have not yet begun converting the funds. Tighter government loan-management measures are also expected to slow individuals’ overseas investment outflows. The IIF said the nominal effective exchange rate, a measure of the won’s international purchasing power, has fallen from 100 in 2020 to the mid-to-late 80s, leaving room for a substantial reversal of pandemic-era depreciation. Monetary policy is adding support: the Bank of Korea’s Monetary Policy Board raised its benchmark rate to 3.00% in August for a second consecutive month, narrowing the Korea-U.S. policy-rate gap to 0.75 percentage points, the smallest since November 2022. The Bank of Korea also lifted its growth forecasts for this year and next year to 3.3% and 2.9%, respectively. The exchange rate closed at 1,372.5 won on the 28th, down 8.4 won from the previous session and 183.3 won below its weekly closing peak of 1,555.8 won on the 2nd of last month. Analysts broadly see further medium- to long-term downside pressure, though forecasts range from 1,310 won to 1,420 won depending on U.S. equity performance, seasonal dollar strength and Federal Reserve policy. Upcoming U.S. August ISM manufacturing data and the employment report will influence views on the economy and the Fed’s policy path.