South Korean Won (KRW) struggles as uncertainty over South Korea’s $350bn US investment plan and pending trade negotiations with the US weigh on the currency, BBH FX analysts report.
Trade negotiations face risk of delay
« KRW is underperforming. KRW has underperformed all major currencies since the US and Korea reached a trade deal in principle on July 30. A key reason is that South Korea’s pledge to invest $350bn in the US risk accelerating Korean investors’ appetite for US securities (stocks and bond) and undermine KRW. »
« Moreover, there is ambiguity about how that $350bn will be structured (e.g. cash, loans, guarantees, timeline) which has raised uncertainty over US-Korea tariff negotiations. Indeed, President Lee Jae Myung warned the countries may fail to finalize a trade deal by Wednesday’s meeting with President Donald Trump. »
« Nonetheless, USD/KRW overshoot looks stretched. KRW is undervalued, South Korea has a significant current account surplus (5.8% of GDP), and Bank of Korea is likely done easing (the swaps curve implies steady rates over the next two years). South Korea also has a large FX reserve war chess totaling over $400bn (22% of GDP) to defend the currency. For reference, daily KRW turnover is $171bn. »