ING’s Chris Turner reports that the Korean Won (KRW) continues to advance, driven by back-to-back Bank of Korea (BoK) rate hikes to 3.00% and a Dot Plot pointing to 3.25% in six months. Upgraded Gross Domestic Product (GDP) forecasts linked to a chip export boom underpin the currency, though authorities may worry about KRW/JPY highs and USD/KRW looks due for consolidation.

BoK tightening and export-led growth

“The Korean won continues its advance. The driver this week has been back-to-back rate hikes from the Bank of Korea, with the policy rate now a reasonably high 3.00%. The Bank of Korea has its own, Fed-like, Dot Plot.”

“The median expectation is for the policy rate to reach 3.25% in six months’ time. The good news is that rate hikes are not only being driven by above-target inflation, but by broadening and strengthening growth prospects. GDP forecasts have been revised substantially higher for 2026 and 2027 as the chip export boom filters across large parts of the economy.”

“However, KRW/JPY has quickly returned to the highs seen in 2023/24. This might be a problem for Korean authorities fearful of Japanese competition in third markets. Yet having suffered such a weak won for so long, we suspect local authorities will be prepared to tolerate current strength.”

“There is an outside risk to 1350, but USD/KRW has come a long way in a short space of time and is probably due some consolidation.”