South Korean Won Firms After Bank of Korea's First Rate Hike in 3.5 Years

The South Korean won strengthened against the US dollar on Thursday after the Bank of Korea delivered its first interest rate increase in three and a half years, raising the benchmark by 25 basis points to 2.75% to confront persistent price pressures. The USD/KRW pair eased to around 1,484.68 in Asian trading, surrendering slight early gains as the local currency held firm.

The central bank signalled it is prepared to tighten further to steady a weakened won and bring inflation back to target. Governor Hyun-Song Shin said policymakers would keep acting until price growth cools, warning that demand-side pressures could intensify if gains in national income are sustained.

Markets had largely anticipated the decision. The won has outperformed the dollar for more than two weeks, with traders positioning ahead of the move and helping cushion the currency against wider volatility.

A softer dollar added to the won's momentum. The US Dollar Index, which tracks the greenback against six major peers, traded marginally higher near 100.50 after a sharp two-day sell-off driven by cooler US inflation data at both the retail and wholesale level.

The weaker American price figures prompted investors to rethink the Federal Reserve's path. According to the CME FedWatch tool, the probability of a Fed rate hike at its July meeting slid to about 10.2%, down from roughly 31% a week earlier.

With the Bank of Korea leaving the door open to additional tightening, analysts expect the won to stay supported in the near term, though the pair could remain firm as officials balance currency stability against domestic growth risks.