Dollar‑Won dynamics in a shifting macro‑environment

The Korean won has slipped to a 2026‑January‑15 close of 1,468.84 KRW per USD, a modest decline from its 52‑week high of 1,486.90 on 2025‑April‑08 but still well above the 52‑week low of 1,322.42 set on 2025‑November‑27. The currency’s recent trajectory reflects a confluence of domestic monetary policy decisions, cross‑border interest‑rate differentials, and broader geopolitical developments.

1. Monetary policy stasis amid rising FX concerns

The Bank of Korea (BoK) has maintained its policy rate at 2.5 % since May 2025, a stance that has surprised market expectations for a further easing cycle. The BoK’s decision was driven by a dual concern: the waning strength of the won and a real‑estate boom that threatens to tip the financial system into imbalance. In a recent meeting, the BoK reiterated its commitment to a neutral stance—a move that signals confidence in the current growth outlook (BoK‑statement, 2026‑01‑15). The unchanged policy rate has prevented the won from further depreciation, yet the currency remains under pressure as the dollar continues to hold its ground.

2. U.S. dollar resilience and a macro‑driven rally

The dollar’s steadiness is underpinned by firmer‑than‑expected U.S. data. Retail sales and jobless‑claims figures have reinforced the narrative that the Federal Reserve may maintain a tighter stance. A recent FX Daily commentary (2026‑01‑16) noted that the dollar is “drifting higher this week on probably what is best described as a macro move.” This resilience, coupled with the BoK’s policy plateau, has kept the USD/KRW pair in a neutral to slightly bullish zone.

3. Cross‑border interest‑rate arbitrage: Japan, South Korea, China

Think.ing’s January 16 analysis highlights the role of interest‑rate differentials in shaping the won’s trajectory. While China’s rates currently favour the yuan relative to the dollar, Japan and South Korea are positioned as inverses. The BoK’s 2.5 % rate aligns closely with Japan’s policy stance, creating a rate‑arbitrage window that could attract capital outflows from the won if domestic growth falters or if the dollar’s strength persists. Conversely, a tightening of U.S. rates could widen this window, pressuring the won further.

4. Emerging‑market currency performance and regional sentiment

Emerging‑market currencies have performed strongly in 2025, as reported by J. Safra Sarasin (2026‑01‑17). While the won is not an EM currency, its performance is still influenced by global risk sentiment. Positive EM trends can buoy investor appetite for risk‑bearing assets, indirectly supporting the won. However, the BoK’s cautious stance signals that Korea is not ready to ride a speculative surge, preferring a measured approach that prioritises financial stability over short‑term gains.

5. Technical outlook: an inverse head and shoulders pattern?

Société Générale’s technical analysis (2026‑01‑15) flagged a potential inverse head‑and‑shoulders pattern in the USD/KRW chart, suggesting a possible trend reversal toward a weaker won. The pattern’s formation is a cautionary sign; if confirmed, it could herald a bearish phase for the won, especially if the BoK’s policy remains unchanged and U.S. data continues to support dollar strength.

6. Strategic implications for traders and policymakers

  • For traders: The won’s proximity to its 52‑week low and the technical signals indicate a window of volatility. Positions should be hedged against a potential USD surge, especially given the BoK’s rate plateau and the possibility of a widening U.S. rate differential.
  • For policymakers: The BoK must balance the need to curb real‑estate‑driven overheating with the risk of a sudden won collapse. Maintaining a neutral rate provides a buffer, but vigilance is required should global risk appetite shift dramatically.

In sum, the USD/KRW pair sits at a crossroads where domestic policy, global data, and technical patterns intersect. The Korean won’s trajectory will hinge on the BoK’s willingness to adjust policy in response to evolving U.S. monetary tightening and on how quickly global risk sentiment can shift from a bullish stance on emerging markets to a more cautious approach.