South Korean Won strengthens as USD/KRW falls below 1,380

The South Korean Won has strengthened against the US Dollar, with the USD/KRW exchange rate dropping below the 1,380 level during recent trading sessions. This movement follows the Bank of Korea’s decision to raise its policy rate by 25 basis points to 3% in an effort to manage inflation, which cooled to 2.8% in July.

Several factors are contributing to the Won's performance. High enthusiasm for South Korea’s semiconductor and AI sectors has driven significant dollar inflows. Additionally, large-scale buyback announcements from major companies like Samsung and SK Hynix are expected to generate further won conversion flows.

Market participants are also monitoring geopolitical developments, specifically reports of potential de-escalation in tensions between the US and Iran regarding the Strait of Hormuz, which has led to lower oil prices and a weaker dollar. Meanwhile, export companies are navigating complex strategies to manage their dollar holdings as the exchange rate has fallen by over 180 won from its recent peak, forcing a choice between waiting for a rebound or hedging against further declines.