Bank of America has signaled that the USD/KRW exchange rate is likely to stay confined to its recent trading band until the current Middle East crisis eases. The bank points to South Korea's heightened exposure to energy price movements and to changes in global risk sentiment as the primary factors that will keep the pair rangebound in the near term.
According to the bank's assessment, any abrupt rise in USD/KRW that pushes the pair well beyond where fundamentals justify could be seen as excessive divergence. In that scenario, the bank warns that authorities may implement policy measures intended to shore up financial stability, implying a potential for intervention if market moves threaten orderly functioning.
Looking past the immediate period of elevated geopolitical risk, Bank of America expects USD/KRW to trend lower. The bank cites strong chip exports as a supporting force for the South Korean won, suggesting that demand for semiconductors will help underpin the currency. In addition, the bank anticipates a shift toward more balanced portfolio flows, which it says will further contribute to a reduction in USD/KRW over time.
This view separates a near-term phase dominated by external risk factors - notably the Middle East crisis and energy-price sensitivity - from a later phase where trade performance and capital flows exert downward pressure on the dollar relative to the won.
The bank's guidance emphasizes two themes: first, the outsized role of external energy prices and risk appetite in determining short-term currency moves for South Korea; second, the capacity for export strength and improved portfolio flows to reassert influence over the exchange rate beyond the near term.
Market participants should note the dual implications: elevated geopolitical risk can constrain currency appreciation for the won in the short run, while sector-specific strength in chip exports and normalization of investment flows can support a stronger won later on. The potential for policy response to rapid, disorderly moves in USD/KRW also highlights a channel through which authorities may seek to limit deviations from fundamentals.