South Korean Won Holds Near One-Year Low Despite BoK Hikes

The South Korean Won (KRW) is trading near a one-year low against the US Dollar (USD), despite a recent interest rate hike by the Bank of Korea (BoK). The central bank raised its base rate to 3.00% in a back-to-back 25bps increase, which was widely expected by analysts polled by Bloomberg.

While guidance from the BoK was tempered, the policy path implied by officials and swaps suggests further rate hikes are on the horizon. In fact, six out of ten market participants expect the base rate to rise to 3.50% in the next six months, according to the BoK's conditional policy rate projection.

According to Elias Haddad from Brown Brothers Harriman (BBH), Korean Won fundamentals are positive, with the currency being significantly undervalued. South Korea also boasts a massive current account surplus of 9.4% of GDP in Q1, and is set to be included in the World Government Bond Index by November, which should sustain foreign bond inflows.