FX.co ★ South Korean Won Extends Losses

The South Korean won depreciated to approximately 1,460 against the US dollar on Monday, extending its losses to a near three-week low. This movement comes as markets remain cautious ahead of the Bank of Korea's impending policy decision. The central bank is largely anticipated to maintain its current interest rates this week, given its limitations due to exchange-rate volatility and high housing prices, leaving little room for short-term easing and thus preserving Korea's yield disadvantage. Additionally, authorities are closely observing the increase in US dollar deposits within domestic banks, reflecting households' and firms' increased hedging activities amidst the currency's weakness. Although these observations do not constitute a tightening measure, they emphasize concerns regarding foreign exchange stability and signal continuous demand for US dollars, which exerts further short-term downward pressure on the won. Meanwhile, the US dollar saw a slight decline on the day; however, the prevailing expectation that US interest rates will remain elevated for longer continues to hinder any substantial recovery of the won.