The South Korean won is finding support from a combination of domestic equity inflows and the Bank of Korea’s (BoK) increasingly hawkish policy stance, according to analysts at Brown Brothers Harriman (BBH). In a note released on Tuesday, BBH highlighted that the won’s resilience comes despite a broadly stronger U.S. dollar, underscoring the influence of local factors on the currency’s recent performance.
Equity Inflows and Hawkish Policy Provide a Tailwind
BBH analysts point to sustained foreign investment in South Korean equities as a key driver of demand for the won. The benchmark Kospi index has seen net buying from overseas investors in recent weeks, providing a direct source of support for the currency. This inflow is occurring as the BoK maintains a tightening bias, with Governor Rhee Chang-yong signaling that further rate hikes remain on the table to combat inflation, which remains above the central bank’s 2% target.
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The combination of these two factors creates a favorable backdrop for the won. A hawkish central bank typically attracts carry trade flows and bolsters a currency’s appeal, while strong equity markets draw foreign capital that must be converted into local currency.
Market Context and Implications
The won’s recent strength stands in contrast to the performance of several other Asian currencies, which have struggled against a resurgent U.S. dollar. The dollar index (DXY) has climbed on expectations that the Federal Reserve will maintain higher interest rates for longer. However, BBH argues that the won is better positioned than its peers to weather this headwind, given the specific support from the domestic economy and central bank policy.
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Analysts caution that the won’s trajectory will remain sensitive to global risk appetite and any shifts in the BoK’s communication. If the central bank were to soften its hawkish tone, or if equity inflows reverse, the won could quickly lose its recent gains.
For now, the currency appears to have found a floor, with the USD/KRW pair trading within a relatively tight range. The next key catalyst for the won will likely be the BoK’s upcoming monetary policy meeting, where any change in the language around future rate moves will be closely scrutinized by the market.
