South Korean won subjected to increased volatility in near term

The South Korean economy is one of the most open economies amongst its peers in the region. Therefore, the South Korean won is under depreciating pressure against the US dollar, reflecting changes in global investor confidence. The South Korean won is likely to be subject to increased volatility in the near term given the speculation regarding the timing of the U.S. Fed’s next monetary policy move and the political developments in the U.S, said Scotiabank in a research note.

Meanwhile, the sovereign credit rating outlook for the country is stable after a rating upgrade by Standard & Poor’s in August of this year. At present, S&P’s rating for South Korea is “AA”, while Fitch’s and Moody’s are “AA-” and “Aa2”, respectively.

S&P had stated that South Korea enjoys superior economic prospects as compared with most developed economies. Furthermore, it underlined the country’s fiscal and monetary flexibility, along with improved external metrics. In spite of the favorable credit rating backdrop, increased global risk aversion has pushed the country’s five-year credit default swap to 50 basis points, which is still quite below the 2016 peak of a bit over 80 bps seen in February, noted Scotiabank.