Commerzbank analysts Charlie Lay and Dr. Henry Hao highlight that South Korea's strong export-led growth and a record current-account surplus have been key drivers of the Korean Won's recent strength against the US Dollar [1]. The analysts note that increased hedging by the National Pension Service (NPS) and sizeable corporate repatriation flows, including proceeds from a US listing by a major semiconductor company, have reduced the financial-account offset that previously absorbed much of the country's FX inflows [1]. This shift has allowed the large external surplus to translate more directly into a stronger KRW [1].
The Bank of Korea's (BoK) July Monetary Policy Committee (MPC) minutes showed broad agreement on the need for further tightening, though some members argued for waiting until October due to recent tightening in financial conditions following the KRW's strong appreciation and increased volatility in the KOSPI [1]. The analysts suggest that while expectations of further BoK tightening provide additional support for the currency, the main driver remains the current-account surplus and reduced financial-account outflows [1].
USD/KRW has fallen sharply since the end of June, dropping from around 1,560 to 1,385, which implies the KRW has gained over 12% against the USD during this period [1]. Given the magnitude of this appreciation, Commerzbank expects further gains to be more gradual, with USD/KRW likely to consolidate in the 1,350-1,400 range in the near term [1].
The combination of a record current-account surplus and a smaller financial-account offset is expected to remain supportive for the KRW, though the BoK has acknowledged that the stronger won is already tightening financial conditions [1].
CONCLUSION
South Korea's won has appreciated significantly against the US dollar, driven by strong surplus flows and reduced financial-account outflows. Commerzbank expects the currency to consolidate near current levels, with further gains likely to be more gradual as financial conditions tighten.