Insights 
VT 
The South Korean Won (KRW) is struggling due to uncertainties surrounding South Korea’s $350 billion investment plan in the US and ongoing trade negotiations. The KRW has underperformed since a trade deal in principle was reached on 30 July.
This underperformance is partly because of concerns that the investment might increase South Korea’s interest in US securities, impacting KRW negatively. There is also uncertainty regarding the structure of the $350 billion investment, adding to the ambiguity of US-Korea tariff negotiations.
South Korean President Lee Jae Myung has warned of potential delays in finalising the trade deal with the US. Despite these uncertainties, the USD/KRW rate appears to be overextended. South Korea’s current account surplus is 5.8% of GDP, and the Bank of Korea is not likely to ease rates further, as implied by the swaps curve for the next two years.
South Korea possesses a substantial foreign exchange reserve of over $400 billion, equivalent to 22% of GDP, to support the currency. The daily trading turnover for KRW is $171 billion, showcasing the currency’s activity level.
We’ve seen the Korean won lag behind its peers recently, largely because of the ongoing uncertainty surrounding the trade deal with the U.S. This confusion over the pledged $350 billion investment is fueling short-term bearish sentiment. For derivative traders, this creates a classic clash between negative headlines and strong underlying economic health.
Implied volatility on one-month USD/KRW options has surged to 11.5%, a level we haven’t witnessed since the early days of the pandemic back in 2020. With the spot rate pushing towards 1450, we believe the pair is technically overbought and vulnerable to a sharp correction if a deal is finalized. This environment makes selling expensive, far out-of-the-money call options an attractive, albeit risky, way to collect premium.
We must not forget the fundamentals, as South Korea just posted a current account surplus of over $8 billion for September 2025, reinforcing its strong external position. The Bank of Korea also sits on over $400 billion in reserves, a formidable tool to prevent excessive currency weakness. Their recent statements have indicated a hawkish pause, which should provide a floor for the won in the medium term.
All eyes are now on the upcoming G20 summit in mid-November, where leaders are expected to meet and potentially finalize the trade deal details. Given the binary risk of either a relief rally on a successful deal or a further sell-off on a delay, traders could consider long volatility strategies. Buying a one-month USD/KRW straddle would allow a position to profit from a significant price move in either direction, bypassing the need to guess the outcome correctly.
