Commerzbank highlights strong South Korean export momentum, led by semiconductors and petroleum, but notes that South Korean Won (KRW) remains one of Asia’s weakest currencies versus the Dollar. The Bank of Korea (BoK) is expected to raise its policy rate by 25bp to 2.75% in July, having adopted a more hawkish tone as financial stability and inflation risks gain prominence.

Won underperforms despite export strength

"On monetary policy, the Bank of Korea (BoK) is expected raised the policy rate by 25bp to 2.75% at its next meeting on 16 July."

"BoK have adopted a more hawkish tone in recent weeks, with BoK Governor Shin Hyun-song stating that BoK should raise rates “before it's too late”. BoK meeting minutes also show a rising urgency to tighten policy as financial stability risks from the financial and housing markets mount."

"Furthermore, several members suggested that inflationary risks have outpaced growth risks. They noted that the strong semiconductor sector have offset the drag from the Middle East conflict."

"In FX, USD/KRW rose 0.4% to 1,537 yesterday, driven by a stronger USD. KRW is the second-weakest performing currency in Asia this year, falling 6.4% vs the USD compared to the average for Asian currencies ex-Japan of -2.9%."

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