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Analysts at MUFG Bank, point out the South Korean won had weakened significantly. After more rate cut, the Bank of Korea seemed to signal a halt according to them. The see USD/KRW reaching 1250 during the second quarter and falling near year-end toward 1200.

Key Quotes:

“The won weakened toward our prior 2Q20 target but we raise further on back of expectations for more US actions to be directed against China on the Hong Kong national security law issue. Likely continuation of US-China tensions through the rest of the year leads us to raise the 3Q20 forecast, too. But despite having to re-shut schools on fears of a second COVID-19 wave, we think the preponderance of evidence in a country lauded for testing and contact tracing means subsequent outbreaks will probably be moderate and brought under control quickly. We have also raised the previous lower bound of our 2Q20 range (ie, less risk-on) because we haven’t seen enough impact from even encouraging medical news so will await further completion of human trials before assuming more price effects.”

“The general appreciating profile for the won, through 1Q21, is based on economic normalization, 5G kicking in during 1H21 (delayed a half-year) and lower risks of meaningful spikes in infections upon re-opening. Won weakening in May was, once again, coincident with net foreign equity selling, but this has been going on long enough we think it may be structural. The Korean recovery remains worse than Taiwan’s, judging by, eg, changes in official GDP forecasts and in semiconductors. Neither economy is doing great but this still remains an argument to be bullish TWD/KRW. Exports in May dropped -23.7%YoY but should now bottom as industrial economies reopen.”