USD/KRW: South Korean won to strengthen in 2022 against the US dollar – MUFG

After a poor performance of the South Korean won during 2021, analysts at MUFG Bank consider it looks now undervalue. They expect the USD/KRW pair to decline to 1145 by the fourth quarter of the current year.  

Key Quotes:

“KRW depreciated 9.4% against the US dollar in 2021, the second worst performing currency among emerging Asia currencies last year. KRW’s sizeable depreciation was due to the worsened pandemic condition in the country. The Bank of Korea (BoK) raised the 7-day repo rate twice in 2021, with a 25bps hike to 0.75% on August 26th and another 25bps hike to 1.0% on November 25th.”

“In 2022, the engines for Korea’s growth will be better performance of the service sector, stronger private consumption as COVID conditions improve and continued fiscal stimulus. However, tighter financial conditions (50bps policy rate hike) due to its CB’s desire in managing financial risks amid indebted households, and lower exports growth will constrain South Korea’s pace of expansion.”

“The KRW is undervalued now in both effective exchange rate terms and bilateral terms against USD. With the pandemic becoming more controllable in 2022, a steadily economic recovery and better controlled pandemic condition in South Korea would help build confidence and a