South Korean Won: Stable Fed and AI demand support KRW against US Dollar – ING

ING economists Deepali Bhargava and Lynn Song highlight a sharp 8% drop in USD/KRW earlier in the second quarter, driven by temporary flows such as Hynix ADR repatriation and National Pension Service hedging adjustments, alongside a hawkish Bank of Korea (BoK) hike. Strong chip exports and AI-related investment are seen keeping inflation above target. They expect further BoK tightening and see supportive factors for the Korean Won (KRW).

Chip exports and hawkish BoK aid KRW

"The won had a very strong start to the second quarter, with USD/KRW dropping 8%."

"There were probably some temporary factors at play, like Hynix repatriating some of its $16bn ADR receipts or the National Pension Service adjusting hedging ratios, but the Bank of Korea’s hawkish hike in July was important too."

"Here surging chip exports and the investment going into that industry is stoking domestic demand and likely to keep inflation above target for a ‘considerable time’. The market now prices another 50bp of hikes by year-end."

"USD/KRW continues to trade on a very high 12% p.a. volatility, but a stable Fed, hawkish BoK and ongoing AI demand can help KRW."