USD/KRW outlook: What next for the South Korean won?
- The USD to KRW exchange rate has drifted upwards in the past few days.
- The Bank of Korea decided to leave interest rates unchanged.
- The pair also reacted to the ongoing debate on the US debt ceiling.
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The USD/KRW exchange rate drifted upwards after the latest interest rate decision by the Bank of Korea (BoK). It jumped to a high of 1,327, the highest level since May 19. The pair has jumped by more than 1.50% from the lowest level this week as the US dollar index (DXY) rises.
Bank of Korea rate decision
The Bank of Korea concluded its two-day monetary policy meeting and decided to leave interest rates intact for the fourth month. In a statement, the bank decided to leave interest rates intact at 3.50%, which was still higher than the pandemic low of 0.50%.
Bank of Korea also decided to lower its growth projection for the year. It expects that the economy will grow by 1.4% from its previous estimate of 1.6%. It also maintained the inflation target for the year to 3.5%.
The South Korean economy has lost momentum in the past few months. As I wrote here, this slowdown has happened mostly because of a slowdown in the technology sector. For example, Samsung, the biggest company in South Korea, announced that its profits dropped to the lowest level in 14 years.
Samsung is an important part of South Korea’s economy, where it accounts for about 18.3% of the country’s economy. Further, other companies in the country like LG Electronics and SK Group have seen a decline in revenue. Recent data shows that South Korea’s exports and imports tumbled.
Recent data shows that the global economy is not doing well, which is impacting the South Korean economy. The IMF said that the economy will slow to 2.8% this year after growing by 3.4% in the previous year. This is important since the South Korean economy depends on global trade.
The USD/KRW exchange rate is also reacting to the likelihood of a US default if Democrats and Republicans fail to reach an agreement.
The USD to South Korean won has been in a slow bullish trend in the past few days. It has moved slightly above the key resistance point at 1,327.50, the highest point in March. The pair has moved above the 25-day and 50-day moving averages (MA). The Relative Strength Index (RSI) has moved above the neutral point at 50.
Therefore, the USD/KRW pair will likely continue rising as buyers target the next key resistance point at 1,342, the highest point on May 16. A drop below the support at 1,320 will invalidate the bullish view.
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