USDKRW opened higher today at 1080.75,...>

KOREAN WON: USDKRW opened higher today at 1080.75, breaking above its 100DMA,

before edging back down to 1076.40 at the time of writing. A bottoming process

appears to be forming and should resistance-turned-support at the 100DMA

(currently at 1074.20) hold, further short-term strength is likely.

- The won's weakness was driven by a further increase in U.S. bond yields, which

continue to widen their advantage over Korean rates. The 2-year yield spread is

now 45bps in the USD's favour, and while this reflects lower inflation

expectations in Korea, real yield spreads also continue to head in the U.S.'s

favour.

- USDKRW remains ~9% lower than the level that would be justified by relative

real interest rates and default risk, based on historical correlations, and it

would take a major reversal in U.S. Fed policy to prevent further KRW weakness.

- However, we continue to see won strength vs the Japanese yen, which is coming

under pressure from rising global bond yields given the BOJ's lack of

willingness to hike rates amid high levels of government debt.