KRW Strength Extends on Intervention and Exporter Selling

South Korea's currency, the Won, has continued its upward trend against the US Dollar. According to Commerzbank economists, the USD/KRW exchange rate slipped by 0.1% to 1,430 yesterday, building on earlier losses this week.

The strength of the KRW is attributed to two key factors: reported coordinated intervention in the foreign exchange market by the Ministry of Economy and Finance with Japan, and sustained exporter selling of Dollars, including significant forward sales in June.

Commerzbank also highlighted that inflation in South Korea may pick up sharply in August due to low base effects from last year's one-off telecommunications discount program. However, they predict that inflation will ease gradually thereafter as government relief measures fade.

The Bank of Korea is expected to deliver one additional 25bp rate hike this year, taking the Base Rate to 3.0%, in line with its latest median policy rate projection.