State Street Sees Won Rebound H2 as Equity Outflows Ease
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
usd-krwsouth-korean-won
Fazen Markets Editorial Desk
Collective editorial team · methodology
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A State Street Bank and Trust Co. senior trader forecasts the South Korean won will rebound in the second half of 2026. The projection, made on June 2, 2026, hinges on an anticipated moderation in foreign equity outflows. The trader, with over 25 years of experience, identified persistent current-account surpluses as a fundamental pillar of support for the currency. This outlook suggests a potential reversal from the won's recent underperformance against a strengthening US dollar.
The won has been under sustained pressure in 2026, closely tracking foreign investor activity in the Korean stock market. The currency's performance is a critical indicator of risk appetite for Asian emerging markets. A reversal would signal broader investor confidence returning to the region's export-dependent economies. The last significant won rebound occurred in the fourth quarter of 2023, when the currency appreciated over 6% against the dollar on dovish Federal Reserve expectations.
The current macro backdrop is defined by elevated US Treasury yields and a strong dollar index, which recently touched a year-to-date high. Global risk-off sentiment has driven capital away from emerging market assets. Foreign investors have been net sellers of Korean equities for three consecutive months, a primary driver of the won's depreciation. The Bank of Korea has maintained a cautious stance, holding its policy rate steady to combat inflation while avoiding excessive currency weakness.
The catalyst for a potential H2 shift is the expected peak in the current cycle of foreign equity selling. As global monetary policy uncertainty diminishes, particularly around the Fed's path, the pressure on the won is projected to subside. Korea's structural current-account surplus, which has averaged over $6 billion monthly for the past year, provides a consistent underlying demand for the local currency. This surplus acts as a natural buffer against prolonged depreciation.
The USD/KRW exchange rate recently traded above 1,420, near its highest level since November 2023. The won has depreciated approximately 8% year-to-date against the US dollar, underperforming the MSCI Emerging Market Currency Index's 3% decline. Foreign investors sold a net $7.2 billion in Korean stocks in the second quarter alone. This selling pressure directly weakens the won as investors convert local currency proceeds back into dollars.
Korea's current-account surplus for April 2026 was $6.8 billion, marking the 15th consecutive month in surplus. The nation's foreign exchange reserves stand at $435 billion, providing the Bank of Korea with substantial firepower to smooth volatility.
| Metric | Current Level | Change YTD |
|---|---|---|
| USD/KRW | ~1,422 | +8.0% |
| KOSPI Index | 2,650 | -5.5% |
| 10-Year Korean Bond Yield | 3.45% | +35 bps |
Korean bond yields have risen in sympathy with US Treasuries, but the spread to US 10-year notes has narrowed to 120 basis points. This narrowing reduces the carry trade appeal for foreign investors, contributing to the outflow dynamic.
A stronger won would have significant second-order effects across Korean asset classes. Export-heavy sectors like technology and automotive would face headwinds to earnings competitiveness. Major exporters such as Samsung Electronics (005930) and Hyundai Motor (005380) typically see a negative correlation between their share price and the won's strength. A 1% appreciation in the won could translate to a 0.5-0.8% downside revision to operating profit forecasts for these firms.
Conversely, domestic-focused sectors and importers would benefit from a stronger currency. Airlines like Korean Air Lines (003490) would see lower fuel costs, while retailers would benefit from cheaper imported goods. The potential rebound also positively impacts Korean dollar debt issuers, as a stronger won reduces the local currency cost of servicing foreign currency debt. A key risk to this outlook is a reacceleration of US inflation, forcing the Fed to maintain a hawkish stance longer than markets anticipate. This could prolong the strong dollar environment and delay the won's recovery.
Market positioning data from futures markets shows speculative accounts have built a significant net short position on the won. Any sign of a dovish Fed pivot or stabilization in Korean equities could trigger a short-covering rally, accelerating the won's rebound. Flow data indicates institutional investors are beginning to accumulate oversold Korean blue-chip stocks, a potential leading indicator for currency stabilization.
The primary catalyst for the projected H2 rebound will be the Federal Reserve's policy meetings in July and September 2026. Any clear signal of an impending rate cut cycle would weaken the dollar and relieve pressure on emerging market currencies like the won. The Bank of Korea's next policy decision on July 11 will be scrutinized for any change in rhetoric regarding currency stability.
Key technical levels for USD/KRW include near-term support at 1,400 and resistance at 1,450. A sustained break below the 1,400 psychological level would confirm a bullish reversal for the won. Traders will monitor the daily flow data from Korea's stock exchange for early signs of foreign selling abating. A reduction in net selling to below $100 million daily would support the stabilization thesis.
The pace of China's economic recovery remains a critical external factor, given Korea's significant export exposure to its largest trading partner. Stronger Chinese import demand would boost Korea's trade surplus, further supporting the won. The relationship between the Korean won and the Chinese yuan remains a key cross-rate to monitor for Asian FX sentiment.
A weaker won increases the price of imported goods and services, contributing to domestic inflation. Essentials like energy, food, and international travel become more expensive. This erodes household purchasing power and can lead to weaker domestic consumption, impacting the revenues of local retailers and service providers. The Bank of Korea must balance supporting exports with controlling inflation.
The correlation is strongly negative, typically around -0.7 over the last decade. When foreign investors buy Korean stocks, they sell dollars to buy won, strengthening the currency. When they sell stocks, they convert won back to dollars, weakening it. This flow-based relationship is a more immediate driver than long-term economic fundamentals for the currency's short-term volatility.
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