Brown Brothers Harriman’s (BBH) Elias Haddad reports that USD/KRW has eased back toward 1500 after briefly trading above 1510, as the Bank of Korea (BoK) delivered a hawkish hold and signaled its next move is likely a hike. Haddad notes South Korean Won (KRW) is significantly undervalued on a real effective basis, but expects this mispricing to persist until the current energy shock subsides.

Won seen undervalued versus trend

"USD/KRW eased back to near 1500 after a brief rally above 1510. The Kospi plunged as much as 5% before trimming losses to around 1%. Bank of Korea (BoK) delivered a hawkish hold. BoK kept the policy rate unchanged at 2.50% for an 8th consecutive meeting (expected) and signaled the next move is a hike."

"BoK Governor Shin Hyun Song stressed that the Board “judged necessary to raise the Base Rate at an appropriate time.” Moreover, two (Chang Yongsung, and Ryoo Sangdai) of the seven Board members dissented in favor of a 25bps hike, the first hawkish dissent of this cycle."

"Finally, BoK raised its 2026 real GDP growth (+0.6ppt to 2.6%) and CPI forecasts (headline: +0.5ppt to 2.7%, core: +0.3ppt to 2.4%)."

"Indeed, KRW is significantly undervalued. The won is over -11% undervalued relative to its real effective exchange rate trend, the most since 2009. KRW undervaluation is unlikely to unwind until the energy shock fades."

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