South Korean Won: Undervalued currency backed by BoK hikes – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad highlights USD/KRW near a one‑year low after the Bank of Korea (BoK) delivered a back‑to‑back 25bps hike to 3.00%. While guidance was tempered, the policy path implied by officials and swaps is higher, and Haddad argues Korean Won (KRW) fundamentals are positive, with undervaluation, a large current account surplus and expected foreign bond inflows.
Korean Won supported by strong fundamentals
"USD/KRW is holding near a one year low. Bank of Korea (BOK) delivered a back-to-back 25bps hike to 3.00%. Most analysts polled by Bloomberg (14 of 22) had a hike penciled in, the rest expected a hold."
"BoK hawkish guidance was tempered. The statement scrapped the line that “it is judged that it will be necessary to continue a policy stance consistent with further rate hikes,” reiterating instead that it “will determine the timing and pace of further Base Rate hikes based on incoming data.”"
"Its six-month ahead conditional policy rate projection shows six members at 3.50%, ten at 3.25%, and five at 3.00%. The swaps curve implies a policy rate closer to 3.50% in the next six months and 3.75% in the next twelve months."
"Overall, KRW fundamentals are positive. KRW is significantly undervalued, South Korea has a massive current account surplus (9.4% of GDP in Q1), full WGBI inclusion by November should sustain foreign bond inflows, and BOK has scope to deliver more hikes."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
