Goldman Sachs Forecasts Korean Won to Strengthen Below 1300 Level Against Dollar

Goldman Sachs has adopted a more optimistic stance on the South Korean won, forecasting the currency to strengthen past the key 1300 per U.S. dollar level in the medium term. The investment bank attributed its bullish outlook to South Korea's strong trade performance and recent signals from the country's central bank.

Economic Tailwinds for the Won

In a research note, Goldman Sachs argued that fundamental economic factors are creating downward pressure on the USD/KRW exchange rate. The bank identified two primary drivers supporting a stronger won:

• A large trade surplus, which increases foreign demand for the South Korean currency.
• High levels of capital repatriation, as domestic entities convert foreign assets back into won.

These elements, according to the bank, provide a solid foundation for the won's continued appreciation against the U.S. dollar.

Central Bank Signals Acceptance

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Goldman's forecast is bolstered by recent commentary from Bank of Korea (BOK) Governor Chang-yong Rhee, which suggests policymakers are comfortable with a stronger currency. Governor Rhee stated this week that the won's current level near 1330 is still weak by historical standards and that further appreciation would be "welcome" to boost domestic purchasing power.

Goldman Sachs interprets these remarks as an indication that the BOK is not preparing to defend the 1300 level as a hard ceiling for intervention. The bank also posited that a recent decision allowing the National Pension Service to unwind its currency hedges was likely aimed at managing the *pace* of appreciation, not preventing it.

Potential Limiting Factors

Despite the positive forecast, Goldman Sachs pointed to a potential headwind that could moderate the won's gains. The firm suggested that the Bank of Korea might step in to accumulate foreign exchange reserves as the rate approaches the 1300 mark. Such an action would involve the central bank selling won to purchase dollars, which would slow the pace of the currency's ascent.