The South Korean Won (KRW) has experienced a steady appreciation, with the USD/KRW exchange rate falling toward 1340 in a largely uninterrupted decline since its peak in late June, according to DBS Group Research’s Chang Wei Liang [1]. This rally was previously supported by optimism stemming from a booming memory sector and significant investment commitments by Korean memory manufacturers [1]. However, DBS now anticipates that further gains in the KRW will be more limited. The research notes that the undervaluation of the KRW has largely closed, with current pricing now very close to its fair value as indicated by the DEER model [1].
A key development impacting the outlook is the reported suspension of foreign exchange (FX) hedging operations by Korea’s National Pension Service (NPS) [1]. The suspension is interpreted as a potential signal from authorities to temper expectations for additional KRW appreciation [1]. DBS suggests that without a broad-based decline in the US dollar, the scope for further KRW gains is now reduced [1].
No specific market reactions or analyst forecasts beyond these points are provided in the article. The focus remains on the moderating factors for the KRW, including the closing of undervaluation and the NPS’s policy shift [1].
CONCLUSION
The South Korean Won’s recent rally is expected to moderate as its undervaluation closes and the National Pension Service suspends FX hedging. Without a broader USD decline, further KRW gains are likely to be limited. Market participants may need to adjust expectations for additional appreciation in the near term.