Korean Won: Rate Hikes and Undervaluation Support KRW - BNY

The Bank of Korea's latest rate hike is providing fresh support for the Korean won. BNY analyst Geoff Yu noted that the central bank raised its benchmark interest rate by 25 basis points to 3.00%, while simultaneously upgrading its economic growth and inflation forecasts, signaling to the market that monetary policy tightening may persist. Although strong exports and investment provide a buffer for the economy, stronger domestic demand could also pose risks of pushing up inflation and household debt, potentially forcing the central bank to maintain a hawkish stance.

**Rate Hikes and Fundamentals Build Dual Support**

Signs of recovery in the Korean economy provide a fundamental basis for the won's rebound. Data shows that South Korea's exports in the first 20 days of April rose 11% year-on-year, while first-quarter GDP grew 3.4% year-on-year, far exceeding economists' expectations of 2.5%. This better-than-expected growth momentum, combined with the central bank's tightening policy, has led some strategists to believe that the worst period for the Korean Won may be over. Eddie Cheung, senior emerging markets strategist at Amundi, said a more optimistic view of economic fundamentals could drive the Korean Won stronger, and expects the currency to reach 1,350 per dollar by year-end. As of press time, the dollar-won pair was trading around 1,381.70.

**External Environment and Valuation Factors in Play**

The Korean Won's outlook remains deeply tied to the dollar's trajectory. Analysts suggest that if the dollar maintains its strength, the won will continue to face external pressure; conversely, if the Federal Reserve initiates an easing cycle, the won's appeal will increase. Earlier, the joint intervention signal from the finance ministers' meeting of South Korea, Japan, and the United States has also strengthened market expectations of policy support for Asian currencies. Oversea-Chinese Banking Corporation even predicts that the won could further strengthen to 1,335 per dollar by year-end as demand for tech products improves. However, some argue that the 1,400 level is not an absolute defense line for Korean authorities, and the central bank may only slow the pace of depreciation rather than defend a specific point. The won still records a decline of more than 6% year-to-date, and its future trajectory will depend on further developments in interest rate differentials and export resilience.