KRW underperforms amid US-Korea trade deal uncertainty – BBH
South Korean Won (KRW) struggles as uncertainty over South Korea’s $350bn US investment plan and pending trade negotiations with the US weigh on the currency, BBH FX analysts report.
Trade negotiations face risk of delay
"KRW is underperforming. KRW has underperformed all major currencies since the US and Korea reached a trade deal in principle on July 30. A key reason is that South Korea’s pledge to invest $350bn in the US risk accelerating Korean investors’ appetite for US securities (stocks and bond) and undermine KRW."
"Moreover, there is ambiguity about how that $350bn will be structured (e.g. cash, loans, guarantees, timeline) which has raised uncertainty over US-Korea tariff negotiations. Indeed, President Lee Jae Myung warned the countries may fail to finalize a trade deal by Wednesday’s meeting with President Donald Trump."
"Nonetheless, USD/KRW overshoot looks stretched. KRW is undervalued, South Korea has a significant current account surplus (5.8% of GDP), and Bank of Korea is likely done easing (the swaps curve implies steady rates over the next two years). South Korea also has a large FX reserve war chess totaling over $400bn (22% of GDP) to defend the currency. For reference, daily KRW turnover is $171bn."
Author
FXStreet Insights Team
FXStreet
The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.
