Global foreign exchange markets remained largely range-bound on Tuesday, with the Korean won leading gains among Asian currencies as USD/KRW slipped below 1400.
The won’s recovery follows a prolonged period of weakness earlier this year, when portfolio outflows and equity sales by foreign investors—totaling $100 billion year-to-date—pushed the exchange rate as high as 1560 in June. Authorities in Seoul responded with measures including adjustments to the National Pension Service’s FX hedging strategy and expanded access to central bank swap lines, yet the currency’s rebound appears primarily driven by domestic growth dynamics.
Second-quarter GDP expanded 0.6% quarter-on-quarter, supporting a 25-basis-point hike by the Bank of Korea to 2.75% in July. Exporters have since shown greater willingness to repatriate earnings, with the current account surplus widening to as much as $50 billion monthly. The repatriation of proceeds from SK Hynix’s $20 billion American Depositary Receipt issuance has also contributed to the won’s strength.
Elsewhere in FX markets, the dollar traded narrowly ahead of Wednesday’s release of the July FOMC meeting minutes. The minutes are expected to reflect a 9-3 vote in favor of holding rates steady, though analysts at ING suggest any hawkish references may only provide temporary support for the greenback. Longer-dated U.S. Treasury yields remain above 5.30%, while the Philadelphia Semiconductor Index fell 5% on Monday—a modest decline relative to recent volatility.
In Europe, natural gas prices have edged toward annual highs, pressuring eurozone manufacturers and reinforcing hawkish expectations at the European Central Bank. ECB Chief Economist Philip Lane reiterated concerns over persistent inflation, noting risks of headline price growth holding near 3.0% through 2024 due in part to El Niño-driven food price pressures. July eurozone inflation data, due later on Tuesday, is forecast at 2.9%.
Sterling showed little reaction to July UK CPI data, which rose as expected but left core services inflation at 3.8% year-on-year—below levels likely to prompt further Bank of England tightening. ING’s UK economist, James Smith, expects no additional hikes from the BoE, though the impact on GBP may materialize later in the year. The pound remains supported by carry demand amid low volatility conditions.
Analysts anticipate further consolidation in broad FX markets, with USD/JPY expected to trade within a 99.40-99.80 range. One-day FX option straddles in USD/JPY are pricing in a 28-pip range over the next 24 hours.
