South Korean Won: How Are Inflation and BoK Tightening Shaping the Backdrop? – MUFG

For the South Korean Won (KRW), a favourable interest rate backdrop and an expanding trade surplus provide support, though uncertainty over foreign equity flows acts as a counterweight. MUFG notes that South Korea’s headline Consumer Price Index (CPI) inflation is easing, while core inflation remains sticky at 2.8% year-on-year, above consensus. Alongside robust growth and booming semiconductor exports, persistent core price pressures should sustain expectations of further tightening by the Bank of Korea (BoK).

How are rates and trade shaping the Korean Won?

"South Korea’s inflation data reinforced the contrast between easing headline inflation and persistent underlying price pressures."

"Headline CPI moderated to 2.8%yoy in October from 2.9%, while core inflation remained at 2.8%yoy, above consensus."

"Combined with strong growth and the semiconductor export boom, sticky core inflation should keep expectations for further BoK tightening alive."

"For KRW, that relatively supportive rate backdrop adds to the fundamental support from Korea’s increasingly large trade surplus, although foreign equity flows remain a pivotal offset."

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