Korean FX Markets To Ignore COVID Second Wave
(2 min read)
KRW/USD futures have stabilised around 0.84 (USD/KRW at 1185) – its post-COVID highs(lows) – in recent weeks. This comes even as Korea faces a second wave of COVID-19 cases. The scale of the wave is much smaller than the first, but nevertheless authorities have introduced measures to contain the outbreak, which has raised the spectre of a slowdown in economic activity. Korean stocks have taken notice and have started to weaken, and foreign inflows have been absent. The question, then, is whether KRW will follow stocks into weakening. For now, we do not think so.
One reason is that the authorities are unlikely to implement a full countrywide lockdown. So far, measures have revolved around prohibiting large social gatherings in Seoul and tightening social distancing guidelines. Such steps are unlikely to impact economic activity too much. Korea’s favoured approach of using track-and-trace technology also limits the economic fallout. This could reduce the link between the increase in COVID cases and the currency.
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