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The KRW has rallied more than 3 percent since early July, largely due to a broadly weakening dollar and alleviated geopolitical situation on the Peninsula. USD/KRW is now approaching a critical support, suggesting limited downside potential in the pair for now.
The nation’s foreign reserves have climbed persistently in the past four months, slowing the pace of appreciation in the KRW. In addition, the first round of US-China Comprehensive Economic Dialogue was held in Washington on July 19.
However, US Treasury said Wednesday that US-China press conference was cancelled, which could raise some concerns in financial markets. US President Donald Trump said Wednesday that tariffs on steel imports "could happen."
The KRW will remain susceptible to external uncertainty including global liquidity conditions and geopolitical situation. A growing concern over the potential withdrawal of global liquidity will likely bear-steepen UST and KTB yield curves again and weigh on the KRW afterwards.
"We would like to maintain and add to our long CNH/KRW cross position ahead of July ECB meeting while expecting USD/KRW to trade in a range of 1,120 to 1,180 in the July-September quarter," Scotiabank commented in its latest research report.
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