South Korean won likely to pare some gains, KRW to appreciate further in medium term - Scotiabank

The South Korean won is likely to pare some gains and consolidate for a while as Korean regulators have deeply showed concern over recent rises in the local currency, while strong U.S. macro data could prompt a dollar rebound, noted Scotiabank in a research report.

On Wednesday, BoK governor stated that he is keeping a close watch on the recent volatility in the local forex market. Moreover, the South Korean finance minister Kim Dong-yeon stated that the authorities would take steps in case of drastic volatility in the FX movements, while reckoning the KRW exchange rate should be determined by the market.

The KRW, in the medium term, is expected to appreciate further if taking into account the improving geopolitical situation on the Korean Peninsula. According to a WSJ report, officials from North and South Korea tested a special hotline for the first time in nearly two years. It is showing some signs of easing tensions between Pyongyang and Seoul prior to the 2018 Winter Olympics scheduled for 9-25 February, stated Scotiabank.

Furthermore, the prospect of additional rate hikes by the Bank of Korea will strengthen the Korean won too, although the central bank is likely to remain on hold until March. Governor Lee stated earlier this week that he will make a prudent decision on a further rate hike by taking all the economic data into account. But the central bank’s zero real policy rate imply room for additional tightening, added Scotiabank.

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