KRW: Spot USD/KRW Steadies Near 1460, Large Wedge Still Persists With BBDXY
Spot USD/KRW has stabilized somewhat in recent dealings. We were last near 1463/64, still around +1.2% in won terms for the session, but up from earlier lows of 1460. This leaves us under the 20-day EMA (near 1471), but still above 50-day EMA support (near 1456). The won surge follows a clear step up in rhetoric from the South Korean government around won weakness, while the National Pension Fund has conducted strategic FX hedging (as part of its new FX hedging strategy per newswire reports). Headlines have also crossed that the FinMin will offer tax benefits for retail investors hedging FX, whilst corporate earnings repatriated back into the won will also see increased tax benefits (via RTRS).
- USD/KRW implied vols have ticked up, most notably at the front end, the 1mth to 7.72%, from recent lows sub 7%. We remain well within recent ranges though. 1yr implied vol is relatively steady near 8.20%. The 1 month risk reversal has fallen to fresh multi month lows, last -0.435 (levels last seen in June of this year).
- The chart below shows the still meaningful wedge between spot USD/KRW levels and broader USD BBDXY index trend levels.
- Hence there is still ample scope for further USD/KRW downside. Focus is likely to be on government efforts around improving the won supply/demand imbalance, particularly in relation to local retail investor outflows to offshore asset markets, which has been a key source of domestic capital outflow pressure in 2025.
Fig 1: Spot USD/KRW & BBDXY Index Trends
Source: Bloomberg Finance L.P./MNI
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USD: BBDXY - Stalled Ahead Of 1230, Needs To Hold Above 1223/24
The BBDXY range overnight was 1224.68 - 1228.98, Asia is currently trading around 1227, +0.10%. The USD stalled toward 1230 heading into the weekend, this morning risk has opened strongly but with Japan out the reaction has been pretty muted. While the price remains above 1223/24 I would be skewed toward expressing a long, looking for a retest of the 1230-1240 area at some point. A move back through this support and are back in the 1210/15-1230/35 range.
- Nick Timiraos posted an excerpt from Bessent interview with CNBC in which he said, “Bessent: Inflation is up because of services, not goods. "If you look at the data, that imported goods, the inflation has actually been flat. Inflation is up because of the service economy and services. So that has nothing to do with tariffs."
- The BBDXY Average True Range for the last 10 Trading days: 369 Points
Fig 1: BBDXY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
CHINA: Central Bank Injects CNY55.7bn via OMO
The CFETS Pledged Repo Deposit Institutions 7 Day Weighted Average declined throughout the week last week as the PBOC injected over CNY 550bn of liquidity via the daily OMO. With sizeable maturities ahead this week, and market sentiment finely balanced, markets will watch closely for liquidity movements as a useful catalyst for the broader market outlook.
- The PBOC issued CNY338.7bn of 7-day reverse repo at 1.4% during this morning's operations.
- Today's maturities CNY283bn.
- Net liquidity injection CNY55.7bn.
- The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
- The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.40%, from prior close of 1.44%.
- The China overnight interbank repo rate is at 1.30%, from the prior close of 1.30%.
- The China 7-day interbank repo rate is at 1.40%, from the prior close of 1.45%.
CNH: USD/CNY Fixing Lower But Above Recent Troughs, Fixing Error Steady
The USD/CNY fix moved lower, back to 7.0847, but this is above recent lows (7.0816). The fixing error was little changed at -289pips, versus -315pips on Friday. The fixing outcome shouldn't change broader USD/CNH trends, where the bias remains to fade upticks. Downside focus will rest on a renewed test under 7.1000, but we are little changed post today's fixing (last around 7.1075, up a touch on end Friday levels). Broader USD trends are a little firmer, with the BBDXY up close to 0.10%.
