Key Moments
- The Korean won has already reached Bank of America’s first-quarter 2026 USD/KRW target of 1,435 after rapid policy action and intervention.
- A joint statement on December 24 by the Ministry of Economy and Finance and the Bank of Korea shifted sentiment, pushing USD/KRW down from 1,480 to 1,460.
- Bank of America still expects USD/KRW to decline through 2026. However, strong Korean retail demand for foreign securities, totaling US$51 billion in 2025, could offset stabilization efforts.
Government Measures Drive Sharp Won Rebound
The Korean won has strengthened sharply against the U.S. dollar. It reached Bank of America’s first-quarter 2026 target of 1,435 faster than expected. This appreciation followed decisive steps by Korean authorities and a change in policy stance.
Momentum picked up further after the Ministry of Economy and Finance and the Bank of Korea issued a joint statement on December 24. They noted that “the recent excessive weakness of the KRW is undesirable.” This comment triggered a reversal in the exchange rate, bringing USD/KRW down from 1,480 to 1,460.
Strategic Hedging by National Pension Service Adds to Pressure on USD
Another phase of won strength emerged after media reports on December 26 indicated that the National Pension Service had begun implementing its strategic hedging framework. This action could lead to significant U.S. dollar selling, given the agency’s foreign asset holdings of nearly US$600 billion.
| Event | Date | Impact on USD/KRW / Flows |
|---|---|---|
| Joint statement by Ministry of Economy and Finance and Bank of Korea | December 24 | USD/KRW fell from 1,480 to 1,460 |
| Media reports on National Pension Service strategic hedging | December 26 | Second wave of KRW strength; potential for large USD selling |
| Korean retail net purchases of foreign securities | 2025 | US$51 billion, a key risk for stabilization |
BofA Outlook: Further KRW Gains but Retail Flows Remain a Key Risk
Bank of America expects USD/KRW to continue declining through 2026. The outlook is based on a softer U.S. dollar globally and more balanced cross-border portfolio flows. These changes follow the planned inclusion of Korean Treasury Bonds in the World Government Bond Index in April 2026.
Official support for the won has been strong recently, and retail outflows into U.S. equities have moderated. However, Bank of America warns that continued Korean retail demand for foreign assets remains a key risk. In 2025, Korean retail investors were net buyers of US$51 billion in foreign securities. This activity could counter the effects of policy support for the won.
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