Korean Won Poised to Strengthen Below 1300, Goldman Sachs Says

Goldman Sachs has adopted a more positive outlook on the South Korean won, forecasting the currency will strengthen below the 1300 level against the U.S. dollar in the medium term. The investment bank's analysis points to strong domestic economic fundamentals and a more permissive tone from the country's central bank.

Strong Fundamentals Underpin Forecast

According to a note from the bank, the bullish case for the won is supported by two primary factors that are expected to exert downward pressure on the USD/KRW exchange rate.

• Large trade surplus: South Korea's significant trade surplus indicates a strong inflow of foreign currency.
• High repatriation levels: An increase in Korean entities converting foreign earnings back into won further boosts demand for the local currency.

Central Bank Signals Tolerance for Stronger Won

Goldman Sachs's forecast is also bolstered by recent commentary from the Bank of Korea (BOK), which suggests policymakers may tolerate a stronger currency. BOK Governor Shin recently characterized the won at the 1330 level as weak compared to historical standards.

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Shin also stated that further appreciation would be "desirable" as it would enhance household purchasing power. Goldman Sachs interprets these remarks as a signal that the central bank is not committed to defending a specific floor for the USD/KRW near recent levels.

Market Implications

While the fundamental and policy backdrop appears to favor the won, Goldman Sachs noted that the Bank of Korea may act to slow the currency's gains. The central bank could accumulate foreign exchange reserves as the USD/KRW approaches the 1300 mark, which would serve to moderate the pace of appreciation.

The investment bank suggested that earlier policy measures, such as allowing the National Pension Service to unwind currency hedges, were likely intended to manage the *speed* of the won's appreciation rather than to halt it entirely.