USD/KRW rebounded from 1335 after reports that South Korea’s National Pension Service may pause or even reverse its forward-market US Dollar selling. The move follows adjustments to NPS FX hedging introduced in June as part of measures aimed at supporting the won, and it comes after a 15% fall in USD/KRW since June, a decline comparable with the shift seen in 2022.
The developments indicate policymakers are comfortable with the recent appreciation in KRW and are prepared to tolerate a pause in the currency’s gains. ING expects a period of consolidation in USD/KRW and USD/JPY, arguing that lighter Dollar selling in these two major FX pairs could underpin the broader Dollar tone.
Policy Response To Won Strength
We are seeing clear signs that the South Korean Won’s recent rapid appreciation is hitting a policy ceiling. The USD/KRW pair recently bounced off its lows at 1335 after news that the country’s National Pension Service may stop or even reverse its dollar-selling program in the forward market. This intervention pause suggests local authorities believe the Won has strengthened enough for now.
Historically, the Won’s massive 15% rally mimics the sharp correction we saw back in late 2022 when the pair plummeted from over 1,400. While South Korea’s current account surplus has shown massive strength, policymakers want to protect local export competitiveness as global demand fluctuates. We expect this policy shift to temporarily cap the Won’s gains and stabilize the exchange rate.
Implications And Trading Strategies
For derivative traders, we recommend shifting away from aggressive short-dollar positions in both USD/KRW and USD/JPY. Instead, we favor employing neutral-to-bullish option strategies, such as selling short-term puts near the 1335 support level or setting up range-bound spreads. This cooling of Asian currency buying pressure is highly likely to give the broader US Dollar Index a much-needed technical floor in the coming weeks.
