South Korean Won edges up against US Dollar as BoK hikes interest rates

The South Korean Won (KRW) reflects broader strength against the US Dollar (USD) as the Bank of Korea (BoK) delivers its first interest rate hike in three-and-a-half years, raising rates by 25 basis points (bps) to 2.75%. The USD/KRW pair gives back slight early gains and ticks down to near 1,484.68 in the Asian trade on Thursday.

The pair will likely remain firm as the BoK has kept the door open for further interest rate hikes, in an attempt to stabilize a slumping KRW and tame persistent price pressures. “We will respond until inflation stabilizes to BoK's target level,” BoK Governor Hyun-Song Shin said in a statement. Shin added, “Demand side price pressure may need careful monitoring as it can turn into stronger inflationary pressure if robust increase in Gross Domestic Income (GDI) sustained.”

The Asian currency has been outperforming the US Dollar for over two weeks, as market participants had already priced in an interest rate hike by the BoK.

Meanwhile, the US Dollar strives to regain ground after a sharp sell-off in the last two trading days. As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 100.50.

The USD Index fell sharply in the past two trading days as soft United States (US) inflation figures on both the retail and the wholesale level have forced traders to reconsider Federal Reserve (Fed) interest rate expectations.

According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the July meeting have dropped significantly to 10.2% from 31% recorded a week ago.