South Korean Won: Oil-linked range view into BoK meeting – Commerzbank

FXStreet Insights Team FXStreet

Commerzbank’s Charlie Lay argues that elevated South Korean inflation strengthens the case for a 25bp Bank of Korea (BoK) hike to 2.75% on 16 July. USD/KRW has fallen from 1560 to 1506 on earlier Oil weakness, but the bank now expects the pair to trade in a 1500–1520 range, with Oil prices and global risk sentiment remaining key drivers.

Won pressured by inflation and Oil

"South Korea's inflation remained elevated in June, reinforcing the view that the Bank of Korea (BoK) is on course to hike rates next week. Headline CPI inflation was slightly higher at 3.2% yoy from 3.1% in May, marking the highest reading since December 2023. It remained well above BoK’s 2% target."

"Other factors expected to keep inflationary pressures firm include the weak won and robust wage growth linked to the AI-driven semiconductor boom."

"The latest inflation report strengthens the case for BoK to hike by 25bp to 2.75% at the next meeting on 16 July. Inflation has now been above target for several months, while exports continue to surprise on the upside thanks to booming semiconductor demand."

"For USD/KRW, external factors including the USD, global risk sentiment, and geopolitical developments will remain key drivers. USD/KRW has fallen from 1560 to 1506 in the past two weeks due to the pullback in oil prices."

"A rebound in oil prices could limit any further decline in USD/KRW for now. We look for the 1500-1520 range for now, with oil prices likely to remain the key driver in the near term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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