According to ING’s Chris Turner, the South Korean Won (KRW) has continued its upward trajectory, primarily fueled by consecutive rate hikes from the Bank of Korea (BoK), which have raised the policy rate to 3.00% [1]. The BoK’s Dot Plot indicates a median expectation for the policy rate to reach 3.25% within the next six months [1]. These rate increases are attributed not only to above-target inflation but also to strengthening and broadening economic growth prospects, as evidenced by substantially upgraded GDP forecasts for 2026 and 2027 [1]. The improved outlook is closely linked to a boom in chip exports, which is positively impacting large segments of the South Korean economy [1].
Despite the KRW’s gains, there are concerns regarding the KRW/JPY exchange rate, which has quickly returned to the highs observed in 2023 and 2024 [1]. This development may raise alarms for Korean authorities, who are wary of increased Japanese competition in third markets [1]. However, after a prolonged period of weakness in the won, local authorities are expected to tolerate the current strength of the currency [1].
Looking ahead, there is an outside risk that the USD/KRW exchange rate could reach 1350, but given the rapid appreciation of the won, ING suggests that the pair is likely due for some consolidation in the near term [1].
CONCLUSION
The South Korean won’s recent strength is underpinned by BoK rate hikes and a robust chip export sector, with upgraded GDP forecasts supporting a positive outlook. While authorities may be cautious about the KRW/JPY highs, the overall sentiment remains constructive, though some consolidation in USD/KRW is anticipated. Market participants should monitor further policy moves and export trends for ongoing direction.