Won Strengthens as Bank of Korea Extends Rate-Hike Cycle

Key Moments

Won Extends Rally After Successive BoK Rate Increases

The South Korean Won (KRW) traded higher against the US Dollar (USD) on Thursday, pushing USD/KRW down by 0.3% to around 1,380 during the Asian session. The move brought the pair back toward its lowest level in 11 months, as consecutive interest-rate hikes by the Bank of Korea (BoK) continued to lend support to the currency.

Earlier in the day, the BoK lifted its policy rate by 25 basis points to 3%, in line with expectations, as it sought to maintain pressure on inflation, which has been running above the central bank’s 2% target.

Inflation Dynamics and Updated BoK Projections

Consumer price pressures in South Korea eased to 2.8% year-on-year in July from 3.2% in June. Despite this moderation, the central bank tightened policy further to reinforce the path back to its 2% inflation objective.

In its policy statement, the BoK raised its growth projection for this year to 3.3%, up from the 2.6% it had anticipated in July. The inflation forecast for the same period was kept unchanged at 2.7%, according to Reuters.

Capital Flows and Sector Optimism Bolster the Won

The Won has been outperforming the US Dollar in recent weeks as foreign currency inflows into South Korea remained elevated, supported by interest in local companies involved in advanced memory chips and semiconductors.

Analysts at Societe Generale note that, in Asia, the Korean Won “continues to lead performance among major Asian currencies, climbing 12% vs USD on a spot basis YTD.” They highlight that the sharp “move in USD/KRW from around 1560 in early June to below 1380 appears stretched but illustrates enthusiasm surrounding the AI and semiconductor sectors.” According to the bank, the earlier SK Hynix ADR-related Dollar inflows seen in July are now being complemented by “sizeable buyback announcements from Samsung ($80bn) and SK Hynix ($28bn), with associated won conversion flows potentially generating additional dollar selling,” reinforcing support for the currency.

US Dollar Supported by Steady Core PCE

On the US side, the Dollar found some backing from stable Personal Consumption Expenditure (PCE) Price Index data for July. The core PCE inflation measure, which Federal Reserve officials monitor closely, held at 3.3% year-on-year, matching expectations.

BoK Interest Rate Decision – Latest Release Details

The BoK Interest Rate Decision is released by the Bank of Korea. A hawkish stance on inflation that leads to higher interest rates is typically viewed as supportive, or bullish, for KRW, while a more dovish tone or a cut in rates is generally interpreted as negative, or bearish, for the currency.