Investing.com – Analysts at Capital Economics have expressed doubts about the sustainability of Korea's recent win rally. Despite the gain of about 1.4% of the currency against the US dollar this year, they expect the trend to reverse.
The Korean won has shown resilience against the generally strong US dollar, even slightly down against it today. The currency's performance has been exceptional, particularly with the move in relative yields not favoring the benefit.
The political turmoil in South Korea has been a cause for concern for investors, but the country's political institutions have stood up to the challenges, and fears of widespread industrial unrest have not materialized. This stability is reflected in the 5.0% year-to-date increase of , South Korea's main stock market index.
However, the benefit has fallen sharply since the start of the fourth quarter of 2024 and ranks as the poorest performer among emerging market currencies since martial law was imposed in early December. . Although a resolution to the political crisis could lead to another rally, Capital Economics remains skeptical.
The analysts argue that the winner's weakness in the previous year was largely due to a large shift in output gaps, influenced by weak macroeconomic data and unexpected monetary policy actions, such as the rate of it was cut at the end of November followed by dovish guidance from the central bank.
They predict that the Bank of Korea will continue to cut interest rates more aggressively than investors currently expect, in order to strengthen economic growth and keep inflation low, which would lead to output gaps. moving further against the victors.
In addition, Capital Economics predicts that a weaker Chinese, which is expected in response to real prices from the US, will put downward pressure on the Korean winner. Historically, the movements of the renminbi have affected other Asian currencies, including the winner.
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