News & analysis

After ending 2020 on a relatively strong footing due to an effective Covid-19 containment policy and therefore limited economic damage from the pandemic, the Korean won now sits as one of the worst performing expanded majors’ year-to-date. While a backdrop of slowing Chinese and global growth, along with rising DM bond yields due to inflation concerns, suggests the won’s depreciation is likely to extend, other domestic and external factors that suggest further KRW depreciation will be limited. These include a rapid vaccination programme and a hawkish Bank of Korea. Additionally, should global growth conditions improve, these domestic and external factors are likely to evolve into tailwinds for a retracement in recent USDKRW price action. For these reasons, and our view that the macro backdrop will improve in 2022, our forecasts envisage a return to the 1140 level in USDKRW over the 12-month period.

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Author: Simon Harvey, Senior FX Market Analyst

 

 

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