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.
South Korean Won Rises to Over 2-Month High
The South Korean won strengthened to around 1,485 per dollar, advancing for a fifth straight session and reaching its highest level since mid-May, after the Bank of Korea raised interest rates. 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 decision marked the start of a new tightening cycle, with investors assessing whether policymakers will deliver further rate increases if inflation remains elevated. Meanwhile, gains in the won were limited as fresh US strikes on Iran boosted demand for the safe-haven US dollar and heightened concerns over potential disruptions to global energy supplies. Broader market sentiment also remained fragile as renewed volatility in technology shares weighed on risk appetite.
South Korean Won Nears 2-Month High
The South Korean won strengthened to around 1,490 per dollar, extending gains toward its highest level since mid-May, as investors increasingly priced in a Bank of Korea interest rate hike later this week. Persistent inflation, resilient economic growth, and elevated household debt reinforced the case for the central bank’s first rate increase in more than three years, supporting the local currency. The won also drew support from anticipated foreign exchange inflows, with SK Hynix expected to convert part of the proceeds from its $26.5 billion US listing into won for domestic investment, increasing dollar supply in the local foreign exchange market. Meanwhile, investors remained cautious as they monitored heightened Middle East tensions after the US reinstated a blockade of Iranian ports and President Donald Trump announced a 20% charge on cargo passing through the Strait of Hormuz, fueling concerns over higher energy costs, lifting oil prices, and supporting demand for the US dollar.
South Korean Won Weakens Toward 17-Year Low
The South Korean won weakened to around 1,557 per dollar, approaching its weakest level since March 2009 near 1,560 touched earlier in June, as persistent foreign selling of local equities and broad demand for the US dollar weighed on the currency. Overseas investors remained net sellers of Korean stocks for an eighth consecutive session, extending a wave of capital outflows as global funds trimmed exposure to Korean technology shares. The won also came under pressure from a firmer US dollar after stronger-than-expected US labor market data pushed Treasury yields higher and reinforced expectations that the Federal Reserve could raise interest rates later this year. Meanwhile, South Korea reported record trade data for June, with exports surging 70.9% year-on-year to $102.25 billion, marking the first time monthly shipments exceeded $100 billion. The trade surplus widened to a record $36.15 billion, as semiconductor exports nearly tripled to $44.82 billion on robust AI-driven demand.
