The Korean won has been one of the region's worst-performing currencies in 2021. Economists at ING expect the USD/KRW pair to surpass the 1,200 level by the second quarter of the next year before KRW gradually recovering throughout 2023. 

KRW is facing weakness even as BoK hikes

“Softer than expected 3Q21 GDP growth of just 0.3% illustrates how indirect supply constraints are weighing on growth and we anticipate growth moderating to just 2.6% in 2022.” 

“South Korean inflation has spiked higher on base effects – reaching 3.2% in October and will likely not peak until the November figures are released, though it should ease back towards the mid-to-high 2’s in 2022 depending on how persistent current energy price inflation is.”

“We see a further 25bp before year-end and more in 2022, with policy rates ending the year at 1.25% and expectations for a further 25bp of hikes in 2023. The BoK has demonstrated that it does not need to wait for the Fed to move and is also motivated to tighten by high household debt ratios, and a frothy housing market.”

“The risk environment may be even more challenged in the face of rates actually starting to go up in the UK and some other G-7 economies, and we see KRW pushing above the 1,200 level by 2Q22 before slowly recovering in 2023.”