The USD/KRW currency pair traded near 1,510.00 during European hours after pulling back from a 17-year high of 1,516.76 earlier on Monday, reflecting heightened risk aversion in global markets [1]. This risk aversion led to foreign outflows totaling 1.8 trillion Won, exerting downward pressure on the South Korean Won (KRW) [1]. The KRW's vulnerability is underscored by South Korea's heavy reliance on energy imports, with over 90% of its oil needs sourced externally. Recent disruptions in Middle East oil supply, particularly Saudi Aramco's decision to cut crude shipments to Asian buyers for a second consecutive month in April, have further tightened feedstock availability for Asian refiners and constrained output [1]. These supply cuts are linked to the ongoing US-Israel conflict with Iran, which has disrupted flows through the Strait of Hormuz [1].
The USD/KRW pair's advance is also supported by a strengthening US Dollar, driven by rising safe-haven demand amid escalating Middle East tensions and higher oil prices. These factors are fueling inflation concerns and reinforcing the Federal Reserve's hawkish stance, with markets increasingly pricing in the likelihood of a Fed rate hike toward year-end [1]. At its March meeting, the Fed voted 11–1 to keep interest rates unchanged within the 3.50%–3.75% range, marking a second straight hold after a series of cuts in late 2025. Futures markets currently indicate an 85.5% probability that rates will remain unchanged at the April meeting, according to the CME FedWatch tool [1].
The market reaction has been characterized by a shift to 'risk-off' sentiment, with investors favoring safe-haven assets such as the US Dollar. This has contributed to the KRW's weakness and heightened volatility in the currency markets [1].
CONCLUSION
The USD/KRW pair's retreat from a 17-year high reflects significant risk aversion driven by Middle East tensions and energy supply disruptions. The South Korean Won remains under pressure due to foreign outflows and its reliance on oil imports, while the US Dollar benefits from safe-haven demand and expectations of a hawkish Fed. Market sentiment is firmly risk-off, signaling continued volatility for KRW.