Key Takeaways:
LGT Private Banking Asia sees the Korean won strengthening over the next year, cutting its dollar-won forecasts across all three horizons.
LGT Private Banking Asia cut its dollar-won forecasts to 1,400 from 1,490 for three months, citing South Korea's record current account surpluses, resilient technology and memory exports, and a hawkish Bank of Korea bias.
The bank also revised its six-month forecast to 1,420 from 1,460 and its 12-month forecast to 1,420 from 1,450, according to a research report from two specialists at LGT Private Banking Asia. The dollar was 0.3% higher at 1,370.90 won, LSEG data show.
The specialists remain constructive on the multi-year AI trend in South Korea, which has driven the semiconductor boom underpinning export resilience. However, any deterioration in sentiment or slowdown in AI-related capital expenditure could spark strong outflows from Korean equities and a rapid won reversal, they said.
Hawkish BOK stance likely to persist
The hawkish BOK bias is likely to persist. The central bank's revised economic outlook, released Aug. 27, projects growth above potential for both this year and next, strengthening the case for maintaining its hawkish stance. The Bank of Korea has kept a hawkish tone since May, when it added language to its policy statement saying demand-side pressure would gradually build and expand further.
Market rates in South Korea have climbed to levels that weigh on both the stock market and real-sector investment. The term premium has risen steeply since mid-2025, driven by the government's shift toward aggressive fiscal expansion and increased bond issuance. Growth forecasts are climbing sharply on the semiconductor boom, but the gap with domestic demand is widening, and sentiment on the ground is not keeping pace with headline data.
The widening term premium reflects bond supply and demand dynamics. The government intends to fill the gap between headline growth and domestic demand with aggressive fiscal spending, so market concerns over rising bond supply are unlikely to be dispelled easily. This dynamic keeps upward pressure on market rates even as the central bank maintains its hawkish posture.
Mideast tensions add risk-off overlay
The constructive outlook comes as Asian currencies consolidate against the dollar in early trade, while ongoing Middle East tensions may weigh on the region. The U.S. struck Iranian rocket launchers on Larak Island and Iran retaliated against bases hosting U.S. forces in Jordan, with additional incidents reported around the U.A.E. and the Strait of Hormuz, said Rodrigo Catril, senior FX strategist at NAB. The rise in oil prices triggered risk-off sentiment, he said.
The dollar was little changed at 159.70 yen and 0.1% higher at 1,367.90 won, while the Australian dollar was 0.1% higher at US$0.7174, LSEG data show.
This article is for informational purposes only and does not constitute investment advice.
