The South Korean won eased to around 1,415 per dollar, pulling back slightly from a recent over ten-month high, as renewed uncertainty over the Strait of Hormuz weighed on the currency. Iran denied holding direct talks with Washington over reopening the waterway, casting doubt on a near-term deal and keeping oil prices elevated, raising concerns over import costs and inflation in South Korea. Meanwhile, strong semiconductor exports and continued dollar selling by exporters provided support, with July exports rising nearly 63% year-on-year to $98.89 billion and semiconductor shipments surging 179%. Expectations of foreign exchange intervention by South Korean authorities are also helping limit renewed won weakness and keep the currency near its strongest level since October 2025. At the same time, investors are monitoring this week’s US inflation data for further clues on the Federal Reserve’s policy outlook and the dollar’s direction.
South Korea 10-Year Yield Hits 4-Week Low
South Korea’s 10-year government bond yield fell to around 4.15% in early August, hitting a four-week low as it tracked a decline in global bond yields. Qatar reported progress in mediation efforts to end the US-Iran conflict, although details remained limited, helping push oil prices lower and reduced inflation concerns. Nevertheless, the latest minutes from the Bank of Korea’s July meeting showed policymakers would carefully assess the timing and pace of further tightening, with some members favoring preemptive action to contain inflation risks. The seven-member board unanimously raised the policy rate by 25 bps last month, marking its first hike in three and a half years, while signaling that additional increases could follow amid stronger economic growth and persistent price pressures. However, this view was challenged by softer inflation data, as headline annual inflation slowed to a three-month low of 2.8% in July, down from 3.2% in June and below expectations of 3%.
South Korean Won Rises to Nearly 3-Month High
The South Korean won strengthened to around 1,451 per dollar in late July, reaching its highest level since early May, supported by expectations for tighter monetary policy and improved domestic fundamentals. The Bank of Korea reiterated that maintaining a tightening stance remains necessary amid persistent inflation pressures, following its recent rate hike to 2.75%, while highlighting stronger exports and investment as factors supporting continued economic growth. The currency also received support from SK hynix converting proceeds from its US listing into won, boosting demand for the local currency despite foreign investors selling South Korean equities. Meanwhile, gains were limited by uncertainty surrounding the Federal Reserve’s policy outlook, with markets still weighing the possibility of higher US interest rates. Volatility in the global semiconductor market also continued to influence broader risk sentiment.
South Korean Shares Extend Losses
The benchmark KOSPI fell more than 1% to around 6,620 on Monday, extending losses from the previous session as weakness in US technology stocks continued to weigh on investor sentiment. The decline followed another selloff on Wall Street, with investors staying cautious ahead of major US technology earnings and this week’s Federal Reserve policy decision, which could offer fresh clues on AI spending and interest rates. Samsung Electronics (-0.7%), SK Hynix (-1.4%), SK Square (-4.9%), Hyundai Motor (-1.1%), and Hanwha Aerospace (-7.7%) were among the notable decliners. Meanwhile, easing geopolitical tensions after the US paused strikes on Iran over the weekend pushed oil prices sharply lower and improved global risk sentiment. Markets also found support from a series of AI cooperation agreements between South Korean firms and global technology companies, including a long-term semiconductor supply deal involving SK Group and Nvidia, as well as Nvidia’s investment in Naver.
South Korean Won: Strong GDP and inflows support Won – Commerzbank
Commerzbank reports that South Korea’s advance Q2 GDP rose 0.6% quarter-on-quarter and 3.7% year-on-year, beating expectations. Robust AI-related semiconductor demand and resilient domestic spending underpin growth. The strong data support prospects of a further 25bp Bank of Korea hike in August. USD/KRW fell to 1,475, with the Won aided by portfolio inflows into bonds and equities.
Growth surprise bolsters BoK hike case
“The advance Q2 GDP rose 0.6% qoq sa (Bloomberg consensus: 0.4%) vs 1.8% in Q1. This suggests that growth momentum remained resilient despite energy supply disruptions.”
“On an annual basis, the economy expanded 3.7% yoy (Bloomberg consensus: 3.5%) vs 3.8% previously. The Ministry of Economy and Finance (MoEF) recently upgraded its 2026 growth forecast to 3.0% from 2.0%, reflecting the stronger outlook for exports and investment.”
“On monetary policy, the strong Q2 GDP reading supports the case of another 25bp hike to 3.0% by the Bank of Korea (BoK) at the 27 August meeting. At the previous meeting, Governor Shin Hyun-sung described August as a “live” meeting, reinforcing the BoK’s data-dependent approach.”
“With growth remaining resilient, inflation above target, and the AI-driven export boom broadening into wages and domestic demand, policymakers have scope to continue normalising policy.”
“In FX, USD-KRW fell 0.2% to 1,475 yesterday. The pair initially dropped 0.9% following the GDP release before paring some of its losses later in the session. Portfolio inflows provided support for KRW, with foreign investors purchasing USD1.0bn of domestic bonds and USD3.7bn of equities so far this week.”
South Korean Won Rises on Policy Support
The South Korean won strengthened to around 1,480 per dollar, rebounding from the previous session and approaching its highest level since mid-May, amid South Korea’s latest efforts to internationalize the won. The government announced measures to improve foreign access to the currency, including allowing overseas financial institutions to borrow won through temporary overdrafts and use won-denominated bonds as collateral in financial transactions, building on the recent launch of a 24-hour dollar-won trading market. The currency also remained supported after the Bank of Korea raised its benchmark interest rate by 25 basis points to 2.75% last week, marking the start of a new tightening cycle aimed at curbing inflation and supporting the won. Meanwhile, escalating Middle East tensions lifted oil prices and boosted demand for the safe-haven US dollar amid renewed concerns over inflation and US interest rates.
Korean Won Pauses Gains on Oil Rally
The South Korean won hovered around 1,480 per dollar, pausing recent gains after climbing to its strongest level since mid-May, as escalating US-Iran tensions fueled a rally in oil prices and dampened risk sentiment. Brent crude rose above $85 per barrel, heading for its biggest weekly gain since April after renewed US strikes on Iran and attacks near the country’s main oil export terminal heightened concerns over supply disruptions. Earlier this week, the central bank lifted its benchmark interest rate by 25 basis points to 2.75%, as widely expected, marking its first increase since early 2023 as policymakers sought to curb persistent inflation and support the currency following months of depreciation. The move signaled the start of a new tightening cycle, though the currency’s gains were capped by cautious market sentiment amid renewed volatility in technology shares and rising geopolitical tensions.
South Korean Won edges up against US Dollar as BoK hikes interest rates
- The South Korean Won ticks up against the US Dollar as BoK raises interest rates for the first time in three-and-a-half years.
- The BoK was expected to hike policy rates to counter persistent inflationary pressures.
- Traders have dialed down the Fed’s interest rate hike expectations as US inflation cools down.
The South Korean Won (KRW) reflects broader strength against the US Dollar (USD) as the Bank of Korea (BoK) delivers its first interest rate hike in three-and-a-half years, raising rates by 25 basis points (bps) to 2.75%. The USD/KRW pair gives back slight early gains and ticks down to near 1,484.68 in the Asian trade on Thursday.
The pair will likely remain firm as the BoK has kept the door open for further interest rate hikes, in an attempt to stabilize a slumping KRW and tame persistent price pressures. “We will respond until inflation stabilizes to BoK’s target level,” BoK Governor Hyun-Song Shin said in a statement. Shin added, “Demand side price pressure may need careful monitoring as it can turn into stronger inflationary pressure if robust increase in Gross Domestic Income (GDI) sustained.”
The Asian currency has been outperforming the US Dollar for over two weeks, as market participants had already priced in an interest rate hike by the BoK.
Meanwhile, the US Dollar strives to regain ground after a sharp sell-off in the last two trading days. As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 100.50.
The USD Index fell sharply in the past two trading days as soft United States (US) inflation figures on both the retail and the wholesale level have forced traders to reconsider Federal Reserve (Fed) interest rate expectations.
According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the July meeting have dropped significantly to 10.2% from 31% recorded a week ago.
