MUFG Bank analysts note that the South Korean won has weakened considerably. After a further rate cut, the Bank of Korea appeared to report a halt according to them. The U.S. dollar / KRW reached 1,250 in the second quarter and fell towards the end of the year around 1,200.
“The won has weakened from our previous 2Q20 target, but we are rising higher due to expectations for more US action against China on the issue of Hong’s national security law Kong. The likely continuation of American-Chinese tensions during the rest of the year also leads us to raise the forecasts for 3Q20. But despite school closings for fear of a second wave of COVID-19, we believe that the preponderance of evidence in a country rented for testing and contact tracing means that subsequent epidemics will likely be moderate and brought under control quickly. We have also raised the previous lower limit of our 2T20 range (i.e., Less risk) because we have not seen enough impact from even encouraging medical news, so we will wait for the end of human trials before assuming more price effects.
“The general appreciation profile of the won, in 1Q21, is based on economic normalization, the launch of 5G during 1H21 (delayed by one semester) and lower risks of significant peaks of infections during reopening. The weakening gained in May coincided, once again, with the net sale of foreign stocks, but this has been going on for quite a long time, we think it can be structural. The Korean recovery remains worse than that of Taiwan, judging for example by changes in official GDP and semiconductor forecasts. Neither economy is doing well, but that remains an argument for being optimistic TWD / KRW. Exports fell -23.7% year-on-year in May but are now expected to bottom out with the reopening of industrial economies. “