USD/KRW rate pressured ahead of Bank of Korea rate decision

The USD/KRW pair remained under pressure on Wednesday as traders waited for the upcoming Bank of Korea interest rate decision. The pair retreated to a low of 1,290, its lowest point since August 2nd. It has dropped by over 5.30% from the highest point this year.

The Bank of Korea will conclude its monetary policy meeting on Thursday. Economists believe that the bank will decide to leave rates unchanged at 3.5%. It has left them intact in the past seven meetings straight.

The challenge for the central bank is that inflation is moving in the wrong direction. The most recent data showed that the headline Consumer Price Index (CPI) rose by 3.8% in October. It had risen sharply after dropping to 2.3% in July. 

Therefore, the bank will likely warn that interest rates will remain at an elevated level for longer than expected. They also see it being more hawkish as it works to cool inflation, which stands at the same point as in the US. 

Economists expect that the bank will start its pivot in 2024 in a bid to supercharge the economy. Recent data shows that the economy may have bottomed as semiconductor shipments rise.

The USD/KRW pair also reacted to the important economic data from the US that came out this week. On Tuesday, data revealed that the country’s house price index (HPI) rose to a record high in September.

Consumer confidence rose from 99 to 102, a sign that Americans are appreciating the current inflation trends. Another report published on Wednesday showed that the economy was doing well.

The GDP expanded by 5.2% in the third quarter, the biggest increase in decades. This increase was better than the previous estimate of 5.2%. It happened as consumer and government spending increased. Corporate profits rose by 4.1%.

These strong economic numbers could see the Fed maintain higher interest rates for longer even as inflation retreats. Most economists expect the Federal Reserve will start to cut interest rates in June next year. Bill Ackman believes that the bank will slash them in Q1.