USD/KRW Outlook: Slightly weaker, but likely to move sideways, reflecting current trading conditions below the three-month average and near recent lows.
Key drivers:
• Rate gap: The Federal Reserve's potential interest rate cuts contrast with the Bank of Korea's concerns over inflation and currency stability, likely keeping the USD strong versus the KRW.
• Risk/commodities: The ongoing US-EU tensions and geopolitical events may create volatility in the USD, affecting its value.
• One macro factor: The Bank of Korea highlights that a weak KRW could lead to inflation, emphasizing that current USD/KRW levels are misaligned with South Korea's economic fundamentals.
Range: The USD/KRW is expected to hold within its recent 3-month range, potentially drifting along its current position.
What could change it:
• Upside risk: A surprising increase in the core PCE inflation data may boost the USD further.
• Downside risk: Swift intervention by the South Korean government to stabilize the KRW could pressure the USD/KRW exchange rate lower.