South Korean Won: Undervalued currency backed by BoK hikes – BBH

Brown Brothers Harriman's Elias Haddad notes that the USD/KRW currency pair is near a one-year low following the Bank of Korea's (BoK) consecutive 25 basis points rate hike to 3.00%. While analysts were generally expecting a rate increase, the BoK's statement removed the suggestion of further hikes, stating they would decide on timing and pace of rate hikes based on data.

The swaps market indicates a rate closer to 3.50% within the next half-year, and around 3.75% over the next year. Despite the rates being high, KRW is considered undervalued, and South Korea boasts a large current account surplus of 9.4% of GDP in Q1. The Bank of Korea's policy path appears to be more hawkish, with scope for additional hikes. This piece utilized AI assistance for initial drafting and later editing by a human editor.