South Korean Won Surges on Back-to-Back BoK Interest Rate Hikes

The South Korean Won (KRW) strengthened against the US Dollar (USD) on Thursday after the Bank of Korea (BoK) raised its policy rate by 25 basis points to 3%. The move was expected, but it's the second interest rate hike in a row, and it aims to curb inflation above the central bank's target of 2%.

The BoK also revised up this year's growth estimate to 3.3% from 2.6%, leaving its inflation forecast unchanged at 2.7%. Inflationary pressures cooled slightly in July, dropping to 2.8% Year-on-Year (YoY) from 3.2% in June.

The Won has been outperforming the US Dollar for weeks due to high dollar flows into South Korea driven by investment enthusiasm in companies building memory chips and semiconductors. Analysts at Societe Generale noted that the sharp move in USD/KRW from around 1560 in early June to below 1380 appears stretched but illustrates the excitement surrounding these sectors.

The US Dollar also strengthened due to hotter-than-expected US Personal Consumption Expenditure (PCE) Price Index data for July, with core PCE inflation arriving at 3.7% Year-on-Year (YoY), higher than expected.