Instead, a faster BoK rate hike pace irrelevant of local economic fundamentals could be detrimental to the Korean won.” USD/KRW forecastįorex analysts’ forecasts indicated that the USD/KRW rate could peak at the end of this year and then weaken in 2023 as the won regains some ground. There is no strong anecdotal evidence that policy rate differential alone can override global USD bullish factors. “Weakness in the Korean won can be mainly attributed to a broad USD strength. Societe Generale was bearish on the outlook for the won: South Korean won forecast: Will the KRW find support from interventionist policy? What is the KRW forecast heading towards the end of the year and into 2023? We look at some analysts’ projections below. The BoK expected consumer price inflation to remain high around 5-6% range “for a considerable time” as the rising dollar acts as additional inflationary pressure, and it anticipates further rate hikes ahead.Īnalysts at Dutch bank ING expected the central bank to raise rates by 25bp in November, with the potential for another 25-point hike early next year. Policy rate inversion between Korea and the US will likely deepen from here.” A higher interest rates driven by the BoK hikes tend to take a larger toll of biting out consumption power and weakening the property market at a precarious pace. “Despite sticky high inflation due to external factors, the risk of domestic financial instability associated with monetary tightening is much higher in Korea than in the US. “The Board judges that the policy response should be strengthened, as additional inflationary pressures and the risks to the foreign exchange sector have increased affected by the rising Korean won to US dollar exchange rate, while inflation has remained high.”Īccording to analysis by French bank Societe Generale: The BoK had said at that time it expected to return to 25bp hikes, but said last week: The Bank of Korea raised its headline interest rate by 50 basis points (bps) to 3% on 12 October, its second-ever hike of that size, following its first 50bp hike in July. That was the longest stretch of deficits since the 1997 Asian financial crisis.Ī growing interest rate differential to the US is driving down the value of the won, increasing the cost of imports. The deficit was $3.7bn in September, higher than analysts’ consensus estimates of $3.45bn and the sixth consecutive month of trade gaps. ![]() The trade deficit reached a record high of $9.47bn in August, with crude oil accounting for more than 50% of imports. ![]() Persistent trade surpluses in South Korea and deficits in the US kept the USD/KRW exchange rate relatively range bound for a decade from 2010.But the country is on track to record its first annual deficit since the 2008 financial crisis, with imports surging on higher global energy prices. In this article, we look at the key drivers for the South Korean won and the latest forecasts from foreign exchange analysts. Will the won find support from more hawkish interest rate policy from the Bank of Korea (BoK), or will it continue to weaken? ![]() The South Korean currency has been more volatile against the euro, which is facing its own headwinds from geopolitical tensions and an ongoing energy crisis. As a proxy for global risk, the cyclical currency has had the strongest response among Asian currencies to the volatile global macroeconomic environment. The won has been the second worst performing currency in Asia this year, behind the Japanese yen (JPY). The won is currently (20 October) trading at its lowest level against the dollar since March 2009, as a strong US dollar and concerns about the impact of a global recession on South Korea’s export-driven economy weigh on the relative value of the currency. The South Korean won ( KRW) has shed 16.5% against the US dollar (USD) since the start of the year, with more than 6% of that depreciation coming in September alone. The South Korean won is the official currency of South Korea Photo: Guitar photographer / Shutterstock
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