USDKRW continues to hover around the.....>

KOREAN WON: USDKRW continues to hover around the 1,080 level, currently at

1,080.70, having remained stable in the face of the US dollar's broad-based

rally over recent weeks. 

- The decline in US real interest rates has helped reduce some of the won's

overvaluation relative to where the historical correlation between USDKRW and

real rate spread suggest the won's fair value lies. While Korean rate hike

expectations have fallen over recent sessions, they have not fallen as much as

in the US. - Korean CDS markets have also remained largely immune from global

credit pressures, helping keep the won stable, while the Japanese yen's strength

may have also helped to keep the won bid given Japan's importance as a trading

partner. 

- That said, the won remains ~9% overvalued relative to risk-adjusted real yield

spreads and we would likely need to see a combination of further declines in US

rates and still-subdued Korean credit risk to prevent the won from weakening

over the coming months.