The South Korean Won (KRW) strengthened against the US Dollar (USD) on Thursday, with the USD/KRW pair falling 0.3% to near 1,380 during the Asian trading session, marking an 11-month low for the pair. This appreciation follows consecutive interest rate hikes by the Bank of Korea (BoK), which raised its policy rate by 25 basis points to 3%, in line with expectations, to address inflation that remains above the central bank’s 2% target [1].
Inflation in South Korea cooled to 2.8% year-on-year in July from 3.2% in June, but the BoK opted for further tightening to ensure inflation returns to its target. In its policy statement, the BoK revised its growth estimate for the year upward to 3.3% from the previous projection of 2.6% in July, while keeping its inflation forecast unchanged at 2.7% [1].
The Won has outperformed the US Dollar for several weeks, supported by robust dollar inflows into South Korea amid heightened investment enthusiasm in companies specializing in advanced memory chips and semiconductors. Analysts at Societe Generale highlighted that the Korean Won has led performance among major Asian currencies, climbing 12% versus the USD on a spot basis year-to-date. The sharp move in USD/KRW from around 1560 in early June to below 1380 is attributed to optimism surrounding the AI and semiconductor sectors, as well as sizeable buyback announcements from Samsung ($80bn) and SK Hynix ($28bn), which have generated additional won conversion flows and dollar selling [1].
On the US Dollar side, strong US Personal Consumption Expenditure (PCE) Price Index data for July has bolstered the currency, with core PCE inflation rising to 3.7% year-on-year, exceeding expectations of 3.4% [1].
CONCLUSION
The Bank of Korea's back-to-back rate hikes and upgraded growth outlook have significantly strengthened the South Korean Won, driven by investment enthusiasm in the AI and semiconductor sectors and major buyback flows. The currency's performance is expected to remain robust as these factors continue to support dollar inflows and won appreciation. Market sentiment is positive, with high impact on the KRW and broader Asian currency markets.