USD/KRW: Rapid won appreciation is a key concern – Standard Chartered

The rapid pace of the South Korean won appreciation is a key concern for local clients, who expect further appreciation, in line with the view of economists at Standard Chartered.  

USD/KRW was last seen trading above the 1,115.00 mark and some forecast the pair dropping below the 1,000 threshold as the US dollar continues to weaken.

Key quotes

“Some expect USD/KRW to drop below 1,000 as the USD depreciates further. As most of our clients are exporters, KRW appreciation is a major worry. They discussed factors that could drive KRW depreciation, including the Biden presidency; rising US rates are also seen as a potential driver of USD strength.” 

“We believe that USD depreciation will be driven by a reallocation of capital away from US assets. We expect broad USD weakness to extend further amid widening US twin deficits, low US real yields and rich USD valuation. Further, the decline in risk premia after the US election, along with the improved global growth/trade outlook due to positive vaccine developments, is likely to weigh on the USD by driving capital allocation from the US to the rest of the world.” 

“We expect that the US Treasury under Janet Yellen would choose a weaker dollar over a stronger dollar given the choice, and that competitiveness in tradable goods and services industries would be a major consideration. There may be a realisation that global macroeconomic considerations will limit how far the USD can weaken. However, we think Yellen is more likely to try to nudge the USD weaker over the medium-term, and that she will not advocate strength unless the USD depreciates much further than we (or markets) expect.”