South Korean Won Gains on Rate Hike as Dollar Holds Firm Ahead of Jackson Hole

The South Korean won advanced against the dollar on Thursday after its central bank delivered another interest rate hike, while most other Asian currencies traded in a narrow range as the U.S. dollar held firm on expectations of further Federal Reserve tightening.

Dollar Strengthens on Inflation Data, Fed Focus

The U.S. Dollar Index, which measures the greenback against a basket of currencies, was steady at 99.15 after rising 0.3% in the previous session. The dollar's strength was supported by new data showing that U.S. inflation remains elevated.

The U.S. personal consumption expenditures (PCE) price index, a key inflation gauge for the Fed, rose 3.7% year-over-year in July, a figure that was stronger than market forecasts. The data reinforced the case for the central bank to maintain a restrictive policy stance to combat inflation. According to the CME FedWatch tool, markets are pricing in approximately a 60% probability of another rate hike next month.

With inflation proving persistent, investor attention now shifts to the Federal Reserve's annual Jackson Hole economic symposium, where remarks from the Fed Chair will be closely scrutinized for signals on the future path of monetary policy.

Won Rallies After Bank of Korea Rate Hike

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The South Korean won was a standout performer in the region, with the USD/KRW pair falling 0.3%. The currency's gains came after the Bank of Korea (BOK) raised its benchmark interest rate by 25 basis points to 3.00%, marking its second consecutive increase.

The central bank also provided updated economic projections, raising its 2026 growth forecast to 3.3% from a previous 2.6%, while keeping its inflation forecast at 2.7%. The BOK signaled that further, more gradual tightening was possible, a stance that provided additional support for the won.

Other Regional Currency Movements

Elsewhere in Asia, currency movements were mixed as traders balanced local monetary policy against the stronger U.S. dollar.

• Japanese Yen: The yen (USD/JPY) was little changed at 159.36. Markets are reportedly pricing in an 86% chance of a Bank of Japan rate hike next month following comments from Deputy Governor Ryozo Himino suggesting timely hikes could help avoid an inflation spike.
• Australian Dollar: The Aussie (AUD/USD) rose 0.2% to $0.718, extending gains after hotter-than-expected domestic consumer inflation data revived bets for a rate hike from the Reserve Bank of Australia later this year.
• Other Currencies: The onshore Chinese yuan (USD/CNY) traded flat, while the Singapore dollar (USD/SGD) ticked down 0.1% and the Indian rupee (USD/INR) rose 0.2%.