OCBC strategists Christopher Wong and Sim Moh Siong note that Asian FX, including South Korean Won (KRW), has traded slightly firmer on hopes of de-escalation in the Middle East, but stresses that geopolitics remains the key driver. They argue that any further relief rally in Asian FX will depend on concrete details around a potential deal on the Strait of Hormuz. Until such clarity emerges, Wong expects most Asian FX to trade sideways.

Relief rally hinges on Hormuz clarity

"Geopolitics remains the dominant driver, with focus on hopes of de-escalation while President Trump’s threat of escalation acting as a counter. It remains to be seen if it proves to be another ‘pause in follow-through’ moment, but most Asian FX, including KRW traded a touch firmer overnight."

"What markets probably need is clarity on the timeline of reopening the Strait of Hormuz and if Iran secures guarantees. If we do get these details in order, then there is a good chance high-beta currencies, including KRW should take the lead in recovery."

"Further relief rally is not ruled out if de-escalation wins the day. But the extent of a relief rally will hinge on details of the deal – whether it is a temporary ceasefire or not."

"But before we get any details, most Asian FX should trade sideways in the interim."

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