South Korean Won: Inflation and BoK tightening backdrop – MUFG

MUFG highlights that South Korea’s inflation data show easing headline Consumer Price Index (CPI) but sticky core inflation at 2.8% year-on-year, above consensus. Combined with strong growth and a semiconductor export boom, this should keep expectations for further Bank of Korea (BoK) tightening alive. For South Korean Won (KRW), the supportive rate backdrop and growing trade surplus are offset by uncertain foreign equity flows.

Rates and trade shape Korean Won

"South Korea’s inflation data reinforced the contrast between easing headline inflation and persistent underlying price pressures."

"Headline CPI moderated to 2.8%yoy in October from 2.9%, while core inflation remained at 2.8%yoy, above consensus."

"Combined with strong growth and the semiconductor export boom, sticky core inflation should keep expectations for further BoK tightening alive."

"For KRW, that relatively supportive rate backdrop adds to the fundamental support from Korea’s increasingly large trade surplus, although foreign equity flows remain a pivotal offset."