South Korean Won Rises to Over 2-Month High

The South Korean won strengthened to around 1,480 per dollar, advancing for a fifth straight session and reaching its highest level since mid-May, after the Bank of Korea raised interest rates. The central bank lifted its benchmark interest rate by 25 basis points to 2.75%, as widely expected, marking its first increase since early 2023 as policymakers sought to curb persistent inflation and support the currency following months of depreciation. The decision marked the start of a new tightening cycle, with investors assessing whether policymakers will deliver further rate increases if inflation remains elevated. Meanwhile, gains in the won were limited as fresh US strikes on Iran boosted demand for the safe-haven US dollar and heightened concerns over potential disruptions to global energy supplies. Broader market sentiment also remained fragile as renewed volatility in technology shares weighed on risk appetite.

The South Korean won strengthened to around 1,488 per dollar, extending gains toward its highest level since mid-May, as softer-than-expected US inflation reduced expectations of near-term Federal Reserve tightening, weighing on the US dollar and supporting Asian currencies. At the same time, expectations of a Bank of Korea interest rate hike later this week supported the won, with persistent inflation, resilient economic growth, and elevated household debt reinforcing the case for what would be the central bank's first rate increase in more than three years. The won also drew support from anticipated foreign exchange inflows, with SK Hynix expected to convert part of the proceeds from its $26.5 billion US listing into won for domestic investment, increasing dollar supply in the local foreign exchange market. Meanwhile, investors remained cautious as lingering geopolitical tensions in the Middle East continued to pose risks to energy prices and broader market sentiment.

The South Korean won fell to around 1,505 per dollar, easing from a more than one-month high near 1,498, amid renewed US-Iran military strikes and rising oil prices. The two countries exchanged fresh attacks over the weekend, while Tehran claimed it had closed the Strait of Hormuz, raising concerns over disruptions to global oil supplies and fueling fears of higher energy costs. The escalation also dampened global risk sentiment, prompting investors to favor safe-haven assets and the US dollar as crude prices climbed. Meanwhile, expectations that SK Hynix will convert a substantial portion of the proceeds from its $26.5 billion Nasdaq listing into won for domestic investments helped temper pressure on the currency by boosting dollar supply in the domestic foreign exchange market. Investors also looked ahead to this week's Bank of Korea policy decision for further guidance on the interest-rate outlook and policymakers' assessment of inflation, economic growth, and financial conditions.