Bank of America (BofA) offers a forecast that the Korean won (KRW) will appreciate against the U.S. dollar, anticipating an exchange rate of 1,395 USD/KRW by the conclusion of 2026. This expectation unfolds even as the won currently faces downward pressure.
The bank's evaluation suggests that recent government efforts have not been enough to fully stop the depreciation of the won, despite acknowledgement of the currency's weakness by the U.S. Treasury Department. As the currency remains under pressure, it is expected that political factors will mount, seeking greater measures to stabilize the won.
Retail investor portfolio withdrawals continue to be the dominant factor behind the won's weakening. In response, the Korean government enacted a capital gains tax reduction on the sale of foreign equities on December 23, 2025. BofA views this step as a targeted attempt to curb these capital outflows.
Additionally, the bank suggests that further tax incentives could play a role in restoring balance between supply and demand dynamics within Korea's foreign exchange markets. Korean investors' foreign equity holdings are heavily concentrated in U.S. technology firms, which represent a significant segment of their portfolio exposure.
BofA's analysis points out that a considerable market adjustment within the U.S. technology sector could prompt Korean investors to repatriate funds back into domestic markets, an action that would likely enhance the value of the won.
This currency outlook is framed by the interplay between governmental fiscal policies, investor behavior, and external market sectors, particularly the U.S. technology industry.