The Won's Great Reversal: How Chip Cash and a Rate Hike Rewired Korea's Currency

A currency that had spent most of the year near multi-decade lows just posted one of its best months on record. The South Korean won gained nearly 8 per cent against the dollar in July, making it the world's best-performing currency, before touching its strongest level in months late last week.

What preceded the reversal is what had puzzled currency watchers for months. Through the first half of the year the won traded at levels last seen during the 2008 to 2009 financial crisis. At one point earlier this year, it ranked among Asia's worst performers, keeping company with the Philippine peso, Indian rupee, and Indonesian rupiah, currencies more obviously exposed to the energy shock from the Iran war than to anything happening in Seoul. For a country running a sizeable trade surplus on the back of booming chip exports, that was an odd place to be.

A paradox: strong economy, weak currency

The puzzle was never really about South Korea's fundamentals, which had stayed solid throughout the won's slide. It was about where the dollars those fundamentals generated were actually sitting. Export earnings from Samsung and SK Hynix's chip sales were flowing in as expected, but much of that cash was being held offshore or reinvested in dollar assets rather than converted back into won. As long as companies expected the won to keep weakening, the incentive was to sit on dollars rather than convert them, which if anything reinforced the currency's decline.

At the same time, a blistering rally in Korean equities through the first half of the year had left the Kospi trading well above the weightings foreign fund managers typically hold relative to global benchmarks. That imbalance triggered a wave of profit-taking and portfolio rebalancing, with foreign investors net sellers of Korean shares at a record pace even as the underlying companies kept posting strong results.

What broke the cycle was a shift in expectations. Once companies and investors started to believe the won's direction was turning, the incentive to hold dollars offshore flipped, and the same dynamics that had pushed the currency down began working in reverse.

Chipmakers bring the dollars home

Samsung Electronics and SK Hynix are at the centre of the turnaround. In June, the two companies announced plans to invest more than $1 trillion over several years building AI infrastructure and semiconductor plants domestically, a sum that RBC Capital Markets' Abbas Keshvani puts at two-thirds of the country's annual GDP. Funding that scale of build-out means converting overseas dollar holdings back into won on a sustained basis, and traders estimate roughly $1 billion a day is being repatriated through spot and forward markets between mid-July and mid-August, an additional though, as the Financial Times notes, temporary source of won demand.

SK Hynix added to the effect with a $26.5 billion US listing last month, most of whose proceeds are earmarked for investment back home.

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It's going to mean protracted dollar selling for a very long time.

Abbas Keshvani, macro strategist, RBC Capital Markets, on the repatriation flows tied to chipmakers' expansion plans.¹

Equity outflows ease as the Kospi corrects

The currency's strength has arrived even as the Kospi shed nearly a quarter of its value last month, part of a broader global retreat from chipmaker stocks amid doubts about how much further the AI buildout can run. Rather than undercutting the won, the sell-off appears to have taken pressure off it: much of the foreign selling that had weighed on the currency earlier in the year was a function of global fund managers trimming overweight positions built up during the Kospi's earlier surge, and that unwinding has largely already happened. Foreign investors are still net sellers of Korean shares, but at a markedly slower pace than in June, and the slide in US technology stocks has likely curbed South Korean investors' own outflows into names such as Nvidia and Micron.

The month ended violently in both directions. The Kospi closed July 22 per cent lower, its worst month since the global financial crisis, but only after a record 18 per cent single-day surge on the final Friday as Samsung and SK Hynix rebounded. Monday opened with a fall of more than 4 per cent, undoing much of that relief rally.²

Much of the Kospi's earlier rally, though, was financed by retail investors piling into leveraged single-stock ETFs tied to the same two chipmakers now driving the currency's strength. This bet paid off handsomely on the way up but leaves those positions acutely sensitive to further swings on the way down.³ Regulators have already moved, halting new listings of single-stock leveraged ETFs in mid-July and raising the minimum cash deposit on those tracking the two chipmakers, with further measures promised.²

A rate hike ends a three-year freeze

The rebound has been reinforced by monetary policy. On July 16, the Bank of Korea's Monetary Policy Board voted unanimously to raise its benchmark seven-day repurchase rate by 25 basis points to 2.75 per cent, the first increase in more than three years, and one that Governor Shin Hyun-song characterised as the start of a new tightening cycle rather than a one-off adjustment.⁴

The move was driven as much by growth as by inflation. South Korea's economy is running hot: the finance ministry raised its full-year 2026 GDP growth forecast to 3.0 per cent from 2.0 per cent, its highest projection in five years, citing the same AI-driven export boom that has lifted chipmakers' shares.⁵ Higher rates make won-denominated assets more attractive relative to dollar alternatives, adding another leg of support to the currency on top of the repatriation flows.

Bank of Korea officials had been signalling the shift for weeks. Speaking to parliament in early July, Governor Shin argued the central bank had room to let the currency strengthen given the size of the country's current account surplus, expected to top $250 billion this year.

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I believe there is ample room for the won to strengthen going forward.

Shin Hyun-song, Governor, Bank of Korea.⁶

How much further can it run?

Analysts are split on whether the rebound is temporary or has already priced in the good news. The repatriation story is structural rather than one-off, with over $1 trillion in domestic capex plans still to be funded, chipmakers are likely to keep converting dollar earnings into won for years rather than months, not just for the few weeks it takes markets to digest a single announcement. Narrowing interest-rate differentials with the US add a second variable: some economists expect the Bank of Korea to deliver at least one more hike before year-end, potentially taking the policy rate toward 3 per cent, with the timing likely to hinge on upcoming inflation data and the trajectory of household debt.

Set against that is a genuine fragility in the equity market that helped create the conditions for the won's rebound in the first place. If the correction deepens sharply from here, either through a fresh leg of the global AI stock sell-off or a more disorderly unwind of leveraged positions, foreign capital could exit more abruptly than the gradual profit-taking seen so far, reintroducing the kind of pressure that pushed the won to crisis-era lows earlier this year. The same repatriation flows currently supporting the currency would do little to offset a genuine flight from Korean assets rather than a rotation within them.

There is also a policy dimension worth watching. Officials in Seoul have been coordinating with counterparts in Washington and Tokyo on currency matters, a sign that the pace of the won's appreciation is now on policymakers' radar. A won that strengthens too quickly could complicate life for exporters just as easily as one that weakens too far, which may be part of why the currency eased back on Friday after touching its strongest level of the year the day before.

Footnotes

1. Financial Times, Why South Korea's won was one of world's best performers in July (opens in a new tab), August 1, 2026.

2. Investing.com, South Korea's KOSPI falls 4% after worst month since 2008 as chip stocks slide (opens in a new tab), August 2, 2026. ²

3. Investing.com, Korea's Leveraged Chip Trade Hits the Margin Call Wall (opens in a new tab), July 16, 2026.

4. Bloomberg, Korea Raises Rates for First Time Since 2023 on Chip-Led Boom (opens in a new tab), July 16, 2026.

5. Tech Times, Bank of Korea Ends Three-Year Rate Freeze as AI Chip Boom Stokes Inflation (opens in a new tab), July 18, 2026.

6. KED Global, BOK chief forecasts Korean won's rebound, reiterates need for rate hike (opens in a new tab), July 9, 2026.