USD/KRW: Upside exists for the won in the third quarter – MUFG

The Korean won depreciated by 1.4% against the US dollar in June, amid the background of 2.9% appreciation of the greenback (DXY Index). Looking ahead, economists at MUFG expect the USD/KRW pair to come under some pressure as the strength and sustainability of the economic recovery is set to improve in South Korea as vaccinations speed up.

Inoculation is the key

“We see an improving outlook for South Korea’s economy, as vaccinations pick up steam. As of June 29, doses administered per 100 person reached 37, and the government plans to reach herd immunity by November.” 

“The services sector in near-term is likely to receive some boost from the government’s plan to relax social distancing rules from 1st July. Dining-in hours will be extended and restrictions on social gathering will be eased from July 1st.”

“The KRW will benefit from the overall improving outlook and anticipation of BOK’s rate hike; some market participants are now expecting a rate hike by BOK as early as in October.”

“We also would highlight the existence of the risk that COVID-19 new daily cases are still high and no signs of a trend decline and uncertainty, in fact, there were 794 new cases reported on 30 June.”