Brown Brothers Harriman’s (BBH) Elias Haddad highlights USD/KRW near a one‑year low after the Bank of Korea (BoK) delivered a back‑to‑back 25bps hike to 3.00%.
While guidance was tempered, the policy path implied by officials and swaps is higher, and Haddad argues Korean Won (KRW) fundamentals are positive, with undervaluation, a large current account surplus and expected foreign bond inflows
Korean Won supported by strong fundamentals “USD/KRW is holding near a one year low. Bank of Korea (BOK) delivered a back-to-back 25bps hike to 3.00%. Most analysts polled by Bloomberg (14 of 22) had a hike penciled in, the rest expected a hold.” “BoK hawkish guidance was tempered.
The statement scrapped the line that “it is judged that it will be necessary to continue a policy stance consistent with further rate hikes,” reiterating instead that it “will determine the timing and pace of further Base Rate hikes based on incoming data.”” “Its six-month ahead conditional policy rate projection shows six members at 3.50%, ten at 3.25%, and five at 3.00%. The swaps curve implies a policy rate closer to 3.50% in the next six months and 3.75% in the next twelve months.” “Overall, KRW fundamentals are positive. KRW is significantly undervalued, South Korea has a massive current account surplus (9.4% of GDP in Q1), full WGBI inclusion by November should sustain foreign bond inflows, and BOK has scope to deliver more hikes.” Author