US Dollar Weakness Continues To Drive EM FX

Korean won has continued to move lower against the US dollar, USD/KRW last touching session lows at 1100.60. Persistent weakness in the US dollar is once again the main driver of EM FX price action.

• Data released earlier in the session showed foreign reserves rose again to $436.38bn, an approximately $10bn build compared to a $6bn build in October. The increase suggest the Bank of Korea have stepped up efforts to stem the slide in USD/KRW which flirts with the psychological 1100 level which has not been breached since mid-2018.
• A research note from Citi points out that the downtrend in USD/CNH could lead to some signs of nervousness from under-hedged Korean exporters and make the 1100 level difficult to defend for local bids.
• There is, however, room for further intervention from South Korea. Though the build in foreign reserves is the largest in around four years, it represents less than 1% of nominal GDP in 2020, leaving plenty of powder dry.