USD/KRW to advance nicely this month amid Fed tapering expectations – Mizuho

USD/KRW rose in August, closing at 1159.50. The pair is expected to strengthen slightly in September, according to economists at Mizuho Bank. There are three factors to watch out for this month.

The likelihood that the Fed will start tapering

“The FOMC might decide to start tapering in September. The dollar will probably be bought to a certain extent as the US moves steadily towards an exit.”

Suggestions that the BoK might hike rates again

“The BoK’s Monetary Policy Board hiked the policy rate from 0.50% to 0.75% when it met in August. The BoK governor also made some comments about financial normalization. This suggests the BOK might implement one more rate hike before the year is out. The USD/KRW pair’s rise could be held down as investors price in this rate hike.”

The impact of the COVID-19 delta variant

“The situation regarding the delta variant remains up in the air, but there are high hopes regarding vaccinations, so this factor is unlikely to prompt much risk aversion. Unlike regular market themes, though, this situation could deteriorate sharply, so investors should be vigilant.”

“Though another Bank of Korea rate hike will be a won-buying factor, past movements suggest USD/KRW will continue rising as the dollar is bought on headlines related to Federal Reserve tapering. The pair will remain bullish in September if the Fed continues to move towards monetary policy normalization.”