South Korean Won Slips Further on Dollar Strength

The South Korean won held its recent decline past 1,390 per dollar on Wednesday as investors awaited the Bank of Korea's interest rate decision next week.

The central bank is widely expected to keep rates unchanged after cutting its benchmark rate to 3.25% in October.

However, growing speculation suggests the Bank of Korea may adopt a more dovish stance next year, potentially lowering the benchmark rate to 2.5% as inflation stabilizes.

This aligns with recent data showing South Korea's producer inflation holding steady at its lowest level since November 2023.

The won also remains pressured by the US dollar's strength, fueled by expectations of slower Federal Reserve rate cuts, “Trump trades,” and a brief safe-haven boost amid rising tensions between Russia and Ukraine.

The South Korean won tumbled to around 1,390 per dollar on Tuesday, as investors shifted their attention to the Bank of Korea's upcoming interest rate decision.

While policymakers are widely expected to keep rates unchanged next week, speculation is growing that the central bank could adopt a more accommodative stance next year, potentially lowering the benchmark rate to 2.5% as inflation in South Korea continues to stabilize.

At the same time, investors are awaiting South Korea’s producer inflation data, set for release on Wednesday, which could provide further insights into the country’s economic trends.

Meanwhile, authorities have recently pledged to intensify efforts to maintain stability in the foreign exchange markets after the won hit its lowest level in two years.

The currency’s weakness has been exacerbated by the persistent strength of the US dollar, fueled by expectations of a slower pace of Federal Reserve rate cuts and the resurgence of "Trump trades."

The South Korean won traded around 1,405 per dollar, holding close to its lowest level in over two years, weighed down by the continued strength of the US dollar amid expectations of fewer Federal Reserve rate cuts.

Fed Chair Powell signaled on Thursday that rate cuts are not urgent, citing economic strength and peristent inflation, while the dollar gained further on expectations that Trump’s policies and a Republican-controlled Congress could limit the Fed’s ability to lower borrowing costs.

Domestically, South Korea's finance minister announced plans to intensify efforts to stabilize financial and foreign exchange markets and pledged to respond promptly if volatility increases.

Meanwhile, earlier data showed that South Korea's export price index increased by 2% year-on-year in October, while the import price index fell by 2.5%.