FX.co ★ South Korean Won Slips on US–Korea Rate Gap

On Thursday, the South Korean won weakened to approximately 1,383 per dollar, reversing earlier gains in response to heightened caution after the Federal Reserve's policy meeting. The Fed reduced its benchmark interest rate to a range of 4.00–4.25%, marking the first cut since December, and projected two additional reductions within the year. Initially, this decision led to a decline in the dollar and an uplift in Asian currencies. However, Federal Reserve Chair Jerome Powell’s cautionary remarks about a “challenging” economic outlook subdued market sentiment. Despite the rate reduction, the interest rate gap between the U.S. and South Korea remains at 1.75 percentage points, maintaining downward pressure on the won and increasing the potential for capital outflows. Further compounding the situation, minutes from the Bank of Korea's meeting indicated that most board members supported additional rate cuts to mitigate the impact of U.S. tariffs, although concerns over escalating debt curbed immediate action. The board's decision, with a 6–1 vote to keep rates at 2.50%, suggests a shift towards more accommodative monetary policy, reinforcing the expectation of future rate easing.