Won Reverses Amid Risk Off Sentiment

USD/KRW has moved higher as the session developed in Asia, reversing its earlier move lower.

• The won initially saw strength after preliminary data from South Korea showed that exports continued to be strong in December, exports for the first 20 days of December rose 1.2% Y/Y. Imports in the same period fell 8%, which hints at the resurgence of Covid restrictions in the period. As a note, government forecasts released recently predict an 8.6% rise in exports next year, while it expects domestic demand to rise 3.1%.
• Markets shrugged off the strong data and instead focused on renewed Covid concerns globally. The UK has imposed strict lockdown measures on parts of the country after the discovery of a new strain of coronavirus. In South Korea restrictions have been tightened again, the most recent measures announced on Monday were a ban on gatherings of over 5 people, despite official figures showing new cases have dropped under 1,000.
• There were also reports that the government in South Korea are considering up to KRW 4tn in further support measures next month. The stimulus would be funded by reserves and the government is said to be considering an extra budget in 2021.
• Weaker won, spurred by Covid worries, and a stronger US dollar as risk appetite wanes have pushed the pair up to KRW 1101.65, the highest level since Dec 2. Near term resistance in the pair is at 1108.45, the December high. Support is at 1080.90, the cycle low from Dec 7.