USD/KRW analysis after the stronger South Korean GDP data

The USD/KRW exchange rate was flat on Tuesday morning after the relatively encouraging South Korean GDP data. The minor currency cross was trading at 1,280, lower than last week’s high of 1,290. It remains 1.83% above the lowest level this month.

South Korea GDP data and Fed

The South Korean economy expanded at a faster rate than expected in the second quarter. According to the country’s statistics agency, the economy expanded by 0.6% in Q2 after growing by 0.3% in the previous quarter. That increase was a better than the expected increase of 0.5%.

The economy grew by 0.9%, better than the expected 0.8%. Still, the most important parts of the country’s economy slowed down. For example, the statistics agency cited the expansion of the country’s net exports as the main driver. 

However, this performance was mostly because of a 4.2% decline in imports. As I wrote here, South Korea’s exports and imports have retreated this year because of woes in the semiconductor industry.

Domestic demand, which is an important part of the economy declined by 0.1%. Services, construction, facilities, and government spending decline. Therefore, economists believe that the South Korean economy will contract in the second half of the year. In a note, analysts at ING wrote that they expect the Bank of Korea will maintain its hawkish stance. They said:

“If inflation stays in the 2% range for most of 2H23, then the BoK’s tone should shift to neutral and eventually revert to an easing cycle.”

The next catalyst for the USD/KRW exchange rate will be the upcoming interest rate decision scheduled for Wednesday. Economists expect the bank to hike interest rates by 0.25% and bring interest rates to the highest level in over 20 years.

USD/KRW technical analysis

USDKRW chart by TradingView

The USD to KRW exchange rate peaked at 1,290.37 on July 21st. It then pulled back ahead of the upcoming Fed interest rate decision. The pair has found a strong support at the 25-period and 50-period moving averages. The two moving averages have also formed a bullish crossover pattern.

Therefore, the outlook for the USDKRW is bullish, with the next level to watch being at 1,290. A break below the two moving averages will point to a drop to the next support level at 1,270.