The US dollar is expected to strengthen against the Korean won in the second half due to uncertainties surrounding trade conditions and rate hikes being undertaken by the Federal Reserve, a local think thank said Sunday.

The Korea Institute of Finance said judging by overall supply and demand there is a chance that the greenback could appreciate vis-a-vis the Korean currency after losing ground in recent months.

The weak dollar this year can be partly attributed to political uncertainties in the United States.

As of Friday, the exchange rate stood at 1,138.8 won to the US dollar. This is a difference of 68.9 won compared to 1,207.7 won to the dollar at the end of 2016.

The institute said while exports that impacts exchange rates have risen an average of 17 percent on-year in the first four months of this year, protectionism trends in countries like the United States can hurt outbound shipment growth.

A drop in export can cause the dollar to rise in value against the won.

In addition, the decision by the US Fed to mark up its policy rates and the move to reduce its purchase of bonds starting in September onwards are developments that can affect foreign exchange numbers. Such measures can trigger an outflow of funds from other countries, with emerging markets to be the most vulnerable.

As a rule, higher US interest rates usually cause investors to park their money in the world's No. 1 economy.

The KIF said local companies and financial institutions need to factor in potential changes in the exchange rates so as not to be caught unaware in the coming months. (Yonhap)