Korean Won: Appreciation Against Dollar May Slow – OCBC

After a rapid downward move, the recent decline in USD/KRW has slowed significantly. OCBC strategists Sim Moh Siong and Christopher Wong noted that the sharp downward momentum seen over the past eight trading sessions has been exhausted, with the market entering a consolidation phase. Currently, settlement demand from exporters and routine month-end dollar selling are offsetting a broadly firmer dollar environment and foreign investor outflows from Korean equities, leaving the exchange rate temporarily rangebound.

**Bullish and bearish forces intertwined, exchange rate seeking balance**

USD/KRW had previously approached the key psychological level of 1,400 won before pulling back. Market views now suggest that the 1,400 level constitutes strong upside resistance in the near term. This is supported by multiple factors: on one hand, recent finance minister meetings among South Korea, the U.S., and Japan signaled coordinated attention to exchange rates, reinforcing market expectations that Asian nations will defend their currencies; on the other hand, signs of improvement in Korea's economic fundamentals—with exports up 11% year-on-year in the first 20 days of April and Q1 GDP growth exceeding market expectations—are providing some support for the won. However, expectations that U.S. interest rates may stay higher for longer continue to attract global capital flows into dollar assets, pressuring emerging market currencies such as the won.

**Institutions optimistic on medium-term won trajectory**

Despite short-term consolidation, some institutions hold an optimistic view on the won's performance through year-end. OCBC forecasts that the won could strengthen to 1,335 by year-end, driven by recovering global demand for tech products and a potential easing cycle from the Federal Reserve. Eddie Cheung, senior emerging markets strategist at Amundi, also believes a more constructive outlook on economic fundamentals will push the won higher, with a year-end target near 1,350. The core logic behind these forecasts is that once the Fed begins cutting rates, the narrowing of the U.S.-Korea interest rate differential will enhance the appeal of won-denominated assets.

**Outlook hinges on dollar direction and foreign fund flows**

Whether the won can break out of its consolidation pattern will continue to closely track the overall direction of the dollar and fund flows into Korean equities. If U.S. inflation data remains stubborn, further delaying rate cut expectations, the dollar could regain upward momentum, adding new depreciation pressure on the won. Conversely, if Korean exports continue to recover and attract foreign capital inflows, this could provide fresh appreciation momentum for the won. In the near term, USD/KRW is expected to remain rangebound around current levels, awaiting new catalysts.