Insights 
VT 
The South Korean Finance Ministry is actively observing financial markets. The government is committed to offering financial and shipping assistance to support exporters.
There are ongoing concerns due to the trade war effects. As of 2 August 2023, the South Korean won is being impacted by these concerns.
The Finance Ministry In Seoul
The Finance Ministry in Seoul is watching markets with a close eye, showing that officials are not merely monitoring from a distance but may step in more directly if needed. They’re not staying passive either. Measures already planned — including shipping support and credit relief for exporters — suggest they’re aiming to ease the pressure on major international trading businesses hit by reduced demand or more expensive shipping costs.
The concerns linked to trade tensions are not dissipating, instead they are piling up, gradually eroding confidence. As of early August, the currency shows signs of strain. The won is slumping, reflecting how sentiment has tilted. It’s not just a reaction to external disputes, but a consequence of capital flows moving elsewhere, seeking shelter in stable assets.
We’ve seen this sort of pressure before — when large economies circle around each other, raising tariffs or blocking exports, smaller export-driven countries start to see ripple effects on their currencies and interest rates. And this time, with the scale of dependency on high-tech exports and the persistent decline in overseas orders, it’s clear that monetary policy alone won’t be enough to turn tides.
Signals Through Bond And Currency Markets
There are signals being sent through the bond and currency markets. Traders who rely heavily on interest rate hedges or foreign exchange swaps may find spreads moving quicker than the headlines. Price actions are starting to reflect more than short-term uncertainty — they now suggest there is caution about South Korea’s longer-term growth strength.
In the next few weeks, we anticipate one of two things: continued depreciation of the won, or sharper interventions by policymakers should the decline turn sharper. Either way, volatility is likely to persist, especially in markets that lean heavily on future rate expectations. Forward rates may begin to reflect growing pessimism, and the effects will likely not be limited to Asia.
Park’s department has already rolled out incentives to hold the line on the currency front. These moves tend to slow down speculation. However, when the steeper forces at work — such as trade slowdowns and reduced global semiconductor demand — persist, short-lived relief often gives way to further downside.
We believe that focusing too much on headline CPI or central bank language might lead us in the wrong direction here. Instead, secondary market behaviour and open interest near FX options tell the deeper story. Volatility skews on out-of-the-money puts have climbed, indicating that protection is being bought rather than sold.
It’s not only about Korea’s own output, but also how overseas buyers are adjusting stock levels and contracts. Cho’s recent data suggests several trading partners have decreased forward orders, and that pattern rarely reverses quickly.
Given the above shifts, we’re adjusting our own models to reflect a wider range in USD/KRW movements. While current levels may appear oversold, there is still room beneath to test previous lows. Timing trades around policy meetings and export data releases could offer pockets of opportunity, but patience and flexible positioning will be key.
Looking further out, proper risk-reward setups are only likely to emerge as more clarity comes through export volume readings. Until we see a pick-up there, pressure on derivative pricing, particularly those linked to cross-border fund flows, is likely to remain elevated.
