South Korea’s service sector output increased to 0.5% in February. This followed a 0% reading in the previous period.
This unexpected 0.5% rise in service sector output for February suggests South Korea’s domestic economy is more resilient than we thought. After seeing export weakness dominate the narrative through much of 2025, this shift toward internal demand is a significant development. It points to growing consumer confidence and spending, which could rebalance the country’s economic drivers.
Domestic Demand Shows New Strength
Given this strength, we should anticipate a firmer Korean Won in the near term. The USD/KRW has been hovering near the 1,350 mark recently, but this positive domestic data could push it lower. We should consider buying put options on the USD/KRW pair to position for a strengthening won through April.
The equity market should also react positively, as a robust service sector directly benefits many domestically-focused companies. The KOSPI index has struggled to decisively break the 2,800 level this quarter. This news could provide the catalyst for an upward move, making KOSPI 200 call options with May expirations an attractive strategy.
This economic strength complicates the outlook for the Bank of Korea. With inflation still persistent at 2.9% as of last month’s reading, this new data reduces the probability of an early interest rate cut. We should therefore adjust our interest rate derivative positions, anticipating that the BOK will hold its policy rate steady for longer than previously expected.
