KRW: Higher Rates and Chip Boom Support Rally – ING

ING analyst Chris Turner said in the latest report that the Korean won has continued to strengthen recently, backed by two core pillars: the Bank of Korea's hawkish monetary policy stance and robust exports driven by the AI-fueled global chip boom. This provides solid fundamental support for the won's exchange rate.

**Hawkish central bank provides rate differential support**

The Bank of Korea has previously raised interest rates consecutively, pushing the benchmark rate to 3.00%. More crucially, the bank's "dot plot" guidance indicates rates could further reach 3.25% six months from now. ING believes this clear tightening expectation is positive for the won on a rate differential basis. Economists generally expect inflation to remain above target due to strong chip exports and related investment activity, which will force the Bank of Korea to further tighten monetary policy.

**Chip boom drives economy and capital repatriation**

As a key link in the global semiconductor supply chain, South Korea is deeply benefiting from the wave of capital expenditure in the AI sector. Strong chip exports not only support economic growth but also encourage exporters to repatriate more overseas earnings, increasing demand for the won. ING noted that this growth-driven recovery offers policy implications for the won, namely that improving fundamentals are driving currency strength. The firm had previously assessed that there was no need for the USD/KRW exchange rate to fall significantly below the 1400 level, but current trading levels are already well below that position, demonstrating the persistence of the won's rally.