Prospect of Fed Rate Cut + Strong Exports, Korean Won Expected to Rebound
The South Korean won is expected to rebound under the influence of the prospect of a rate cut by the Federal Reserve and strong exports, with an expected appreciation of at least 2% by the end of the year. South Korean bonds and stocks have attracted USD 2.5 billion in inflows, while South Korean exports continue to remain strong. However, the risk of a decline in the South Korean won is increasing. The South Korean government's latest tax proposal may help boost the financial markets and the economy. Investors will closely monitor trade and inflation data to gauge the prospects of a rate cut by the Bank of Korea. The weakness of the South Korean won has made the central bank cautious about cutting rates prematurely
According to the Zhitong Finance and Economics APP, the South Korean won is the worst-performing currency in Asia this year. However, with favorable factors from both domestic and international sources in South Korea, the won is expected to rebound. BNP Paribas and the Bank of Korea predict that by the end of this year, the won will appreciate by at least 2%. The rate cut by the Federal Reserve will be a key driving factor, along with strong exports and the possibility of South Korea joining global indices providing support.
The Bank of Korea forecasts that the exchange rate of the won against the US dollar will reach a high of 1 USD to 1350 KRW. Economist Moon Junghiu from the bank stated that due to the uncertainty surrounding the US election and Federal Reserve policies, "early August may be the most difficult time for the won." He expects the won to appreciate thereafter as exports continue to grow and investors' views on the US election become clearer.
The won has fallen by nearly 7% so far this year, with the USD/KRW rate closing last week at 1 USD to 1383.95 KRW. As the Federal Reserve's policy shift approaches, the recovery of emerging market assets seems imminent. South Korean bonds and stocks have already attracted $2.5 billion in inflows this month and may potentially be included in the FTSE Russell Global Government Bond Index in September.
In addition, boosted by chip shipments, South Korean exports continue to remain strong. The global prosperity of artificial intelligence is a positive for South Korea as it is home to two semiconductor manufacturing giants, Samsung Electronics and SK Hynix.
However, the risks of further depreciation of the won seem to be increasing. The high point reached this month in the USD/KRW rate at 1 USD to 1391.95 KRW still acts as initial resistance. Looking at the Moving Average Convergence Divergence (MACD) indicator, which forms a series of low points indicating a bearish trend, the bullish momentum for the won appears to be weakening.
It is worth mentioning that the South Korean government's latest tax proposals, including extending support for chip manufacturers and reducing inheritance tax, may help boost the country's financial markets and economy. Investors will closely monitor Thursday's trade data and Friday's inflation data to gauge the prospects of a rate cut by the Bank of Korea. The weakness of the won has made the central bank cautious about cutting rates prematurely.
South Korean investment analyst Moon Dawoon stated, "From the perspective of South Korea's current account and stock market trends, the local supply and demand situation is favorable for the won." "Unless there are some specific risks unique to South Korea, further depreciation of the won seems somewhat exaggerated."