Won Traders Eye Mid-to-Uppper-1400 Range as Oil Prices and FOMC Loom

The South Korean foreign-exchange and bond markets are gearing up for a potentially volatile week ahead, driven by global oil prices and the outcome of the Federal Open Market Committee (FOMC) meeting.

Market participants expect the won to trade in the mid- to upper-1,400 range against the dollar, with inflows from exporter dollar sales tied to strong semiconductor exports and expectations for an additional policy-rate increase by the Bank of Korea supporting the currency's value.

Rising Brent crude futures have increased inflation pressure and rate-hike expectations, lifting government bond yields to their highest level since November 2023. The yield on South Korea's three-year government bond rose to 3.959% on July 24, a level not seen since November 2023.

Despite lingering tensions in the Middle East, Lee Jin-kyung, a senior researcher at Shinhan Securities, expects the won to move in the mid- to upper-1,400 range against the dollar this week. The FOMC outcome could amplify moves in the dollar's value and volatility in South Korea's currency and bond markets.