Bank of America says the Korean won remains vulnerable to downside pressures despite South Korea's healthy current-account surplus, which has been driven by strong semiconductor export receipts. The firm points to portfolio dynamics and policy uncertainty as the dominant forces affecting USD/KRW ahead of a cluster of policy events at the end of May.
The bank identifies May 28 as a pivotal date, when the Bank of Korea will announce its monetary policy decision and the National Pension Service will hold its fifth fund management committee meeting. Those events precede local elections on June 3. Together, BofA describes these dates as forming a concentrated policy window that could influence currency flows and market positioning.
BofA expects the Bank of Korea to keep interest rates on hold but to adopt a more hawkish tilt if inflation risks intensify via higher oil prices and foreign-exchange pass-through effects. The bank also notes that election-driven fiscal dynamics may shift toward measures aimed at boosting growth, which could complicate the overall policy stance and the interaction between monetary and fiscal policy.
According to the bank, a disciplined policy combination - consisting of a hawkish monetary stance alongside restrained fiscal expansion - would be supportive of the won. By contrast, a looser mix of monetary and fiscal policy risks exacerbating downward pressure on the currency. BofA emphasizes that the central concern is not the external balance itself, but how the policy mix would influence capital and portfolio flows.
The firm highlights several flow-related factors that are offsetting the strength of the current-account surplus. These include persistent foreign equity outflows, ongoing hedging demand, and continued overseas investment activity. In addition, allocation and hedging choices by the National Pension Service introduce an additional layer of uncertainty into near-term currency dynamics.
BofA concludes that the won's movements are increasingly being determined by portfolio dynamics rather than traditional macroeconomic anchors such as the current-account position. The bank's assessment frames the upcoming policy calendar as a key test of how policy choices will interact with capital flows to shape the currency's path.
Contextual note: The analysis focuses on portfolio flows, policy decisions and election-related fiscal dynamics as the primary determinants of USD/KRW near-term behavior. Where information is limited, the bank confines its conclusions to those factors explicitly cited.