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Investing.com -- United States recently requested South Korea to appreciate its currency as part of ongoing foreign exchange (FX) provision negotiations.
While specific USD/KRW levels were not mentioned, the Ministry of Economy and Finance (MoEF) confirmed that discussions with the US are in progress, although no decisions have been made yet. This development follows the April 24th agreement between the US and South Korea to engage in talks covering tariffs, non-tariff measures, economic security, investment cooperation, and currency policy.
Citi’s FX strategy team has recently adjusted its forecast for the USD/KRW exchange rate, projecting a decrease to 1,380 for the short term (0-3 months) and 1,350 for the medium term (6-12 months). The USD/KRW level has recently dropped below the 1,400 mark, influenced by a general weakness in the US dollar and market expectations that the Trump administration may promote a weaker dollar through FX provisions with Asian countries.
The National Pension Service’s (NPS) strategic FX hedges are anticipated to establish a currency band for the USD/KRW, ranging from a lower band of 1,357 to an upper band of 1,469. The NPS may adjust its FX hedge ratio based on the USD/KRW level, which could contribute to this band’s formation.
Citi analysts believe that the Korean FX authorities might welcome the recent appreciation of the Korean won (KRW), particularly after its significant depreciation in March 2025 to the weakest point since August 2013, as indicated by the Citi Broad KRW Nominal Effective Exchange Rate (NEER) Index.
Despite the ongoing negotiations and market movements, Citi thinks South Korea is deemed highly unlikely to implement a binding FX policy in a specific direction or level. Instead, the government may seek to limit the scope of FX provisions to enhance transparency without committing to a fixed FX policy.
This approach could mirror the currency agreement between the US and South Korea established during the first Trump administration in 2018, which focused on increased information disclosure rather than mandating policy actions.
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