USD/KRW was volatile in March and ended 0.6% higher on the month amid the background of a 1.36% appreciation of US dollar. Risk sentiment will still be the key factor driving USD/KRW movements in April. Economists at MUFG Bank forecast the pair at 1,210 by the end of the second quarter.  

Potential lower risk aversion would provide some support for KRW in the medium-term

“For now, geopolitical conflict still is a key driving force for the USD/KRW. As Russia and Ukraine are negotiating, we expect no escalation but think the uncertainty of Russia-Ukraine situation will remain in near-term, and keep KRW weak in near-term. We forecast USD/KRW at 1,210 by end of Q2.”

“As the country relies on imports to meet almost all of its dry natural gas and crude oil consumption, higher energy prices caused by the Ukraine war will have a direct negative impact on Korea’s trade balance. That said, we still remain positive on the KRW against USD in the medium term.”

“We expect USD/KRW to fall to 1,185.0 by year-end, assuming a resolution to the Ukraine war, better contained pandemic and normalized investor sentiment toward Korean assets.”