DBS Group Research’s Chang Wei Liang notes that USD/KRW has fallen toward 1340 in a steady decline since late June, reflecting earlier optimism on the Korean Won from a booming memory sector and strong investment plans. However, he now expects further KRW gains to be more limited as undervaluation has largely closed and the National Pension Service suspends FX hedging.
Won rally faces diminishing tailwinds
“USD/KRW has eased towards lows around 1340, sustaining a largely uninterrupted decline since its peak in late June.”
“We had been optimistic about KRW given a booming memory market and heavy investment pledges made by the Korean memory makers, but we now see scope for further gains to be lesser without a broad-based USD decline.”
“For one, KRW undervaluation has narrowed so much that KRW pricing is now very close to its fair value, based on our DEER model.”
“Two, Korea’s National Pension Service (NPS) has also reportedly suspended its FX hedging operations.”
“Suspension of FX hedging now could be interpreted as a signal from the authorities to moderate expectations of further KRW gains.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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