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South Korean Won Hits 2.5-Month High as Strong GDP Boosts Rate Hike Bets
The South Korean won rallied to a 2.5-month high against the U.S. dollar on Thursday after stronger-than-expected economic growth data intensified market expectations for another interest rate hike by the Bank of Korea (BoK).
The USD/KRW pair fell 0.7% to 1,466.9, its lowest point since May 11, as traders priced in a more aggressive monetary policy stance from the central bank.
Economic Data Spurs Rally
South Korea's economy, the fourth-largest in Asia, expanded by 0.6% in the second quarter compared to the previous three months, according to advance estimates from the Bank of Korea. This figure exceeded consensus forecasts for 0.4% growth.
On an annual basis, the economy grew by 3.7%, also topping market expectations. The expansion was underpinned by a 1.4% quarterly increase in exports, driven by robust shipments of semiconductors, machinery, and equipment. Private consumption also remained resilient, the central bank noted.
Market Eyes Bank of Korea
AdThe upbeat GDP report comes just weeks after the BoK initiated its tightening cycle with a 25-basis-point rate increase. The strong data has strengthened the case for policymakers to deliver a consecutive hike at their upcoming August meeting to manage inflation.
Analysts at ANZ said the resilient economic activity and rising inflation risks have tilted the balance toward another rate increase. "The stronger-than-expected Q2 GDP print raises the odds of a back-to-back BoK hike in August," said ANZ economist Crystal Tan in a note. Tan added that upcoming inflation data would be a key factor in the bank's decision.
Broader Support for the Won
Beyond monetary policy expectations, several factors are supporting the won. Resilient global demand for semiconductors, particularly from the artificial intelligence sector, is expected to remain a key growth driver for South Korea's export-oriented economy.
Additionally, the narrowing interest rate differential between the U.S. and South Korea following the BoK's recent hike, along with an improving trade surplus, are providing further tailwinds for the currency.
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