If you don't know the exchange rate, your account will shake... The reason experts check the dollar first

Summary

Song Jae-kyung, CEO of Dimension Investment Advisory, explains the mechanics of exchange rates, why the Korean won has weakened despite strong fundamentals, and the outlook for a significant won appreciation. He discusses offshore speculative NDF trading, the upcoming 24-hour FX market opening as a stabilizing factor, the build-up of extreme yen short positions reminiscent of the 2022 carry trade unwind, and the implications of a peaking US dollar for global equity allocation. He concludes that the won should strengthen toward 1,300, which would attract foreign inflows into Korean stocks and make US equities less attractive.

• The Korean won's weakness is largely driven by a surge in speculative offshore NDF trading, not by foreign stock selling.
• 24-hour FX trading in July is expected to absorb speculative flows and stabilize the won.
• The government implicitly targets 1,550 KRW per USD as an upper discomfort level.
• Extreme short positioning in the yen raises the risk of another carry trade unwind and market shock.
• The US Dollar Index likely peaked in January and is starting a downtrend, favoring non-US markets.
• The won is fundamentally undervalued given Korea's record current account surplus and rising reserve currency appeal.
• Gradual won appreciation toward 1,300 would not hurt exports and could trigger foreign buying of KOSPI.
• China is managing the yuan for steady appreciation, benefiting yuan-denominated assets.