TD Securities has weighed in on the recent rally in the South Korean won (KRW), cautioning that the move may be a tactical countertrend against a backdrop of sustained US dollar strength. The Canadian investment bank’s analysis, published on [Date of report, e.g., March 14, 2025], highlights that while the won has gained ground in recent sessions, the fundamental drivers for a stronger dollar remain intact.
USD/KRW: A Tactical Bounce or a Trend Reversal?
The won has appreciated against the greenback in recent trading, breaking a streak of weakness that had pushed USD/KRW above the 1,300 level. However, TD Securities argues that this move is more likely a corrective bounce within a longer-term uptrend for the dollar, rather than the start of a sustained won rally. The bank’s strategists point to the resilience of the US economy and the Federal Reserve’s cautious approach to rate cuts as key supports for the dollar.
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“We see the recent KRW strength as a tactical opportunity to re-enter long USD/KRW positions,” the TD Securities note reportedly stated. “The fundamental picture for the dollar remains constructive, particularly against currencies like the won that are sensitive to global trade dynamics and capital flows.”
The Fed Factor and Global Risk Appetite
The primary driver for sustained USD strength, according to TD Securities, is the divergence in monetary policy expectations. While other central banks, including the Bank of Korea, are moving towards or have begun easing cycles, the Federal Reserve is expected to maintain higher-for-longer interest rates to combat persistent inflation. This interest rate differential favors the dollar.
Also read: South Korean Won: Undervaluation and BOK Outlook Are Key Tailwinds, Says BBH
Furthermore, the won is highly sensitive to global risk sentiment. Any deterioration in risk appetite, whether from geopolitical tensions, trade disputes, or a slowdown in global growth, tends to benefit the safe-haven US dollar at the expense of the won. TD Securities suggests that the current risk-on mood that has supported the won may be fragile.
Key Levels to Watch
Analysts are closely watching the USD/KRW pair for a potential reversal. A break back above the 1,300 level would signal that the dollar’s strength is reasserting itself. On the downside, a sustained move below the recent lows could challenge the TD Securities thesis, but they view this as a lower-probability scenario given the prevailing macro backdrop.
Investors and traders will be monitoring upcoming US economic data, including inflation reports and labor market figures, for further clues on the Fed’s policy path. Any signs of a cooling US economy could weaken the dollar and provide a more durable boost to the won, but for now, TD Securities advises caution.
Frequently Asked Questions
What is the main factor driving the South Korean won’s recent rally?
The rally is largely driven by a tactical pullback in the US dollar and improved risk sentiment, but TD Securities warns this may be temporary.
How does US dollar strength impact the USD/KRW exchange rate?
Sustained US dollar strength, supported by Federal Reserve policy, typically puts downward pressure on the won, making USD/KRW rise.
What is the outlook for the South Korean won according to TD Securities?
TD Securities sees the won’s rally as vulnerable, with sustained USD strength likely to reassert itself, potentially pushing USD/KRW higher.
