MNI: USDKRW continues to consolidates above its......>

MNI: USDKRW continues to consolidates above its 50DMA and 100DMA, currently at

1077. We continue to expect a push higher towards the next key level of

resistance at 1,100 as the pair moves more in line with recent trends in real

yield spreads.

- Korean 2-year swaps have risen over recent days amid hawkish comments on May 5

by BOK Governor Lee Ju-yeol's. They currently stand at 2.0675%, 57bps above the

overnight policy rate. The rise has not been driven by higher inflation

expectations or default risk - both of which remain firmly on downward trends -

suggesting that investors are increasingly anticipating tighter monetary

conditions which should be bullish for the won.

- However, the won is unlikely to strengthen given how overvalued it is relative

to the spread of real yields between the U.S. and Korea. As we noted in a

previous article "KRW At Risk As Asian FX Weakens" (for full story see Main Wire

on May 2), after adjusting for default risk, interest rate spreads suggest

USDKRW should be ~8% higher even after recent won weakness.