The South Korean won staged a strong comeback against the US dollar, soaring to its highest point since November 4. The USD/KRW exchange rate was trading at 1,430, down by 3.65% from its highest point this year. It remains 6.70% up from its lowest point this year.
Why the South Korean won jumped
The South Korean won has soared this week as the central bank officials vowed to act forcefully to boost its value. This statement came after a meeting between central bank’s officials and the Ministry of Finance to deliberate about the currency.
The ministry has also announced some new tax measures to boost the currency. Similarly, the National Pension Service has likely started the strategic currency hedging measures to boost the currency’s performance. In a recent statement, a Bloomberg analyst said:
“Given thinner-than-usual markets around this time of year, leaving USD/KRW unchecked to drift higher would set up the risk of a volatile start to January. That is now looking less likely with traders trimming short won positions.”
South Korean officials have been forced to act forcefully as the USD/KRW neared the psychological level of 1,500. The last time it moved to that level was in the Asian currency crisis in 1997.
A weaker won has an impact on the South Korean economy. On the positive side, the country benefits as a weaker currency as it boosts its top exports like smartphones, computers, chips, and vehicles.
However, the weakening currency risks importing inflation in the country. It also risks accelerating capital outflows.
South Korea has the ability to artificially support the currency. For one, the country has over $430 billion foreign reserves, which it can deploy to support the economy.
Fed and South Korea central bank actions
The USD/KRW exchange rate also reacted to actions of the Federal Reserve and the Bank of Korea.
The Bank of Korea was highly cautious this year as it slashed rates to 2.5%. This caution is mostly because of the rising concerns about the country’s inflation.
On the other hand, the Federal Reserve has maintained a dovish tone in the past few months. It has slashed interest rates to between 3.50% and 3.75%.
Officials have hinted to one more cut in 2026, a move that most analysts don’t believe, as Polymarket odds for more cuts have jumped to over 60%.
USD/KRW technical analysis
The daily chart shows that the USD/KRW exchange rate has pulled back in the past few days. This retreat happened after it moved to a high of 1,483, a few points below the key resistance level at 1,486, its highest point in December last year and April this year.
The pair also retreated after forming a rising wedge pattern, a popular bearish sign. It has also moved below the 50-day moving average.
However, there are signs that it has formed a morning star candlestick, which may lead to a bullish reversal in the near term. If this happens, it may rebound to the key resistance at 1,460.
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