USD/KRW drops and pops after BoK surprises with rates on-hold decision

Speaking at the post-policy meeting press conference, Bank of Korea (BoK) Governor Rhee Chang-yong said that “Thursday's rate decision was not unanimous.”

Additional takeaways

Board member Shin Sung-hwan dissented to Thursday's rate decision.

Need for further rate cuts higher now that downside risks to economic growth has heightened.

All board members said a rate cut would be necessary but took consideration of Dollar-Won FX rates fluctuating due to political turmoil.

Dollar-Won FX rates considerably higher than south korea's economic fundamental.

Need to monitor the impact of two policy rate cuts.

Dollar-won FX rates are unnecessarily high.

Six board members said they are open to rate cuts in the three month ahead window.

Board member Shin said while FX rates is a concern, a rate cut still is appropriate to support growth.

Inflation-targeting central to monetary policy decision making.

Would be appropriate to wait until domestic political turmoil stabilizes, some certainty comes from new US administration before changing policies.

Political turmoil impacting South Korea's economy.

Thursday's rate decision was not because dollar-won rates are at a certain level, but because political uncertainties have been impacting the FX rates.

BoK plans to announce interim assessment on the impact of martial law declaration next week.

The South Korean central bank unexpectedly held its policy interest rate steady at 3% earlier this Thursday, weighing the impact of the previous two rate cuts and the political upheaval on the economy and the exchange rate.

The decision is the first since impeached President Yoon Suk Yeol's attempt to impose martial law in early December. South Korean authorities arrested Yoon on Wednesday.

USD/KRW reaction to the BoK’s policy event

USD/KRW fell hard to test 1,450 in a knee-jerk reaction to the BoK’s surprise rate decision. However, buyers jumped back on the bids following the dovish remarks from Governor Rhee. At the time of writing, USD/KRW has recovered losses to trade neutral at 1,4554.