Menu

Search

  |   Central Banks

Menu

  |   Central Banks

Search

FxWirePro: BoE’s Lee bids adieu with status quo, but lingering optimism for hikes and equity sell-offs to cushion KRW – Position USD/KRW via ratio call spreads

At BOK Governor Lee’s last monetary policy meeting “status quo” looks like the best strategy. Hence this morning BOK remained on hold. The low inflation (at around 1%) is the major reason behind today’s decision.

However, the market still prices in at least one rate hike this year, especially considering that the Fed will likely hike a few times this year. Governor Lee tried to dispel this sort of expectations as he said BOK is not just a follower of the Fed.

It might be a traditional thinking that small Asian industrial economies, such as South Korea, tend to “import” the US monetary policy, as they are highly dependent on US demand. But this time around, South Korea appears to be lagging behind in the curve. One reason is low inflation, the other is the strong KRW.

The equity market sell-off is less of a concern for us and it has opened opportunities to go long KRW and TWD in Asia. We view the equity sell-off as largely disconnected from EM fundamentals. Additionally, for most of EMEA EM and LATAM currencies, equity flows tend to be less important than fixed income flows so the direct flow/equity risk-reduction impact is also less important. The exception is Asia where we highlight pullback in equity holdings in Korea and Taiwan. We recommended using the upside in USDKRW and USDTWD to short.

While on the flips side, we could foresee bullish risks in the dollar on account of a) Inflation convincingly bounces back, further validating the dots; b) Feds’ hiking cycle most likely to continue c) Rest of world normalization is depriced.

Hence, bidding call ratio spreads to serve reduced cost of hedging. If at all the pair may bounce back, especially, on the above-mentioned drivers, long legs are likely to keep upside risks on the check.

Subsequently, we advocate buying Mar’18 USDKRW 1x1.5 call ratio spreads in this write up, using strikes at 1048/1110, indicative offer: 0.28% (vs 0.65% for the 1090 strike, spot ref: 1070).

Currency Strength Index: FxWirePro's hourly USD spot index is flashing at 65 (which is bullish) while articulating (at 13:04 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

FxWirePro launches Absolute Return Managed Program. For more details, visit: 

http://www.fxwirepro.com/invest

  • ET PRO
  • Market Data

Market-moving news and views, 24 hours a day >

December 16 00:00 UTC Released

IDCar Sales YY

Actual

6.8 %

Forecast

Previous

December 16 00:00 UTC Released

ARReal Weekly Earnings MM

Actual

9.1 %

Forecast

Previous

January 31 00:00 UTC 460040460040m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 460040460040m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 22 19:00 UTC 471860471860m

ARTrade Balance

Actual

Forecast

Previous

-1541 %

January 31 00:00 UTC 460040460040m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 22 19:00 UTC 471860471860m

ARTrade Balance

Actual

Forecast

Previous

-1541 %

January 31 00:00 UTC 460040460040m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 460040460040m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 460040460040m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

Close

Welcome to EconoTimes

Sign up for daily updates for the most important
stories unfolding in the global economy.