DOLLAR-WON: USDKRW moved lower this......>

KOREAN WON: DOLLAR-WON: USDKRW moved lower this morning, to 1063 at the time of

writing, with the won benefitting from the higher-than-expected March PPI print

which came in at 1.4% y/y and saw rate expectations rise across the curve.

-The trend remains bullish for the won but the ongoing strength is not being

driven by fundamental factors. 2-year yield spreads continue to move against the

won, as do real yield spreads even as inflation expectations rise much faster in

the U.S.

-The narrowing of real yield spreads has not been driven by falling default risk

in Korea as the 5-year CDS continues to range trade, currently around 47bps.

-Following today's strength, the KRW is over 9% stronger than the levels

justified by default risk-adjusted real yield spreads, based on historical

correlations, suggesting growing downside risk.

-We would likely need to see an aggressive shift by the BOK towards more

monetary tightening to justify the won's strength against the dollar, or a major

reversal in Fed policy, which at this stage seems unlikely.