Trump Deal Threatens Won’s Advance as Dollar Demand to Surge
The South Korean won is under pressure as a $350 billion investment deal with the US is expected to drive huge dollar conversion demand in the coming years.
The currency had all the ingredients for a strong September as the Kospi hit a record high , foreign investors plowed in, and the dollar on the back of the Federal Reserve’s rate cut — yet the won has barely budged. Analysts at Citigroup Inc. and Societe Generale SA point to uncertainties around the US agreement as a key drag, with little on the deal’s structure besides the headline figure.
“Considering the substantial foreign equity inflows in September, USD/KRW should have declined further — potentially below 1,360,” Kiyong Seong , strategist at Societe Generale, wrote in a Thursday note. “One potential offsetting factor is market concern surrounding Korea’s planned $350 billion investment in the US.” The currency closed at 1,397.20 on Friday.
The won is Asia’s worst-performing currency in the second half after a robust start to the year. The 3% decline since the end of June comes even foreigners bought more than $8 billion of local equities during the period. SocGen’s Seong sees limited upside for the currency.
The won is still up more than 5% this year, which would be its first annual gain since 2020 if it holds up.
Ha Joonkyung, a senior presidential secretary, said in an interview with local media last week that the investment deal could become a “ ” in the currency market. Separately, Maeil Business Newspaper reported earlier that South Korea requested an unlimited currency swap with the US to mitigate the investment deal ’s impact on the won.
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Citi economists estimate that the $350 billion in investment may need to be transferred to the US over three years, posing depreciation risks for the won, according to a Sept. 10 note. After accounting for foreign currency raised through public institutions’ bond sales, the resulting demand for dollar conversion could reach $96 billion a year — more than 200% of the national pension fund’s greenback demand, they wrote.
Still, strong equity inflow driven by Kospi gains and a solid current-account surplus are among factors keeping won bulls optimistic. Bank of America Corp. is holding on to its forecast for the won to end the year at 1,340 — roughly 4% stronger than Friday’s close.
“Although portfolio outflows are likely to continue, a weaker dollar following expected Fed cuts in September, together with strong foreign equity inflows and a decent current-account performance in the fourth quarter, can push the won stronger,” Chun Him Cheung , a strategist at Bank of America, wrote in a note before the US central bank’s decision.
The consensus forecast is more muted. Analyst forecasts compiled by Bloomberg see the won at 1,370 by year-end.
“As an export-dependent economy, Korea is vulnerable to trade disputes and tariffs” said Moon Hong-Cheol , an economist at DB Securities. “In such an environment, even broad dollar weakness may not translate into stronger won gains.”
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