Bank of America projects the Korean won will gain strength against the U.S. dollar by the end of 2026, forecasting a USD/KRW exchange rate of 1,395. This outlook emerges despite ongoing downward momentum for the currency and recent government interventions aimed at curbing portfolio outflows. The bank highlights sustained large-scale sell-offs by retail investors and anticipates intensified political efforts to stabilize the currency moving forward.
Key Points
- Bank of America forecasts the Korean won will strengthen against the U.S. dollar, targeting a USD/KRW rate of 1,395 by end of 2026.
- Large portfolio outflows by retail investors remain a primary driver behind the won's current weakness.
- The Korean government's recent capital gains tax cut on foreign equity sales is seen as a partial measure towards addressing currency depreciation.
- Korean investors’ heavy concentration in U.S. technology stocks can trigger repatriation flows and potentially support the won if the U.S. tech sector experiences corrections.
Bank of America has released its forecast showing a strengthening trajectory for the Korean won versus the U.S. dollar by the conclusion of 2026, setting a projected exchange rate of 1,395 USD/KRW. While the won is presently experiencing depreciative pressures, the firm’s analysis suggests that current policy efforts are yet insufficient to arrest this trend.
The Korean government has faced mounting challenges as capital outflows persist, particularly driven by significant portfolio reallocations by retail investors. These outflows remain the main factor behind the won’s weakening as foreign exchange supply exceeds demand. Acknowledging this, the government introduced a reduction in capital gains tax specifically targeting sales of foreign equities, effective from December 23, 2025. Bank of America regards this adjustment as a strategic step toward stabilizing the currency.
However, the bank also indicates that further incentives, particularly additional tax benefits, may be necessary to realign the foreign exchange market dynamics in Korea. The investment landscape shows Korean investors heavily favoring holdings in U.S. technology sector equities. Should the U.S. technology segment face any significant market corrections, this may act as a catalyst for repatriation of funds back to Korea, potentially imparting upward momentum to the won.
Moreover, with public and governmental attention on the won’s valuation increasing, Bank of America expects intensified political will aimed at reinforcing currency stability. The ongoing currency weakness has already drawn remarks from the U.S. Treasury, underscoring a heightened focus at both domestic and international levels.
In summary, although current conditions point to immediate downward pressure on the Korean won, structural changes and market reactions in related sectors could facilitate eventual appreciation over the medium term, with 2026 envisioned as a pivotal year for such developments.
Risks
- Current government policies have so far been inadequate to fully stem the won’s depreciation, indicating persistent market vulnerabilities.
- Continued large-scale portfolio outflows could exacerbate downward pressure on the currency in the short term.
- Potential volatility in U.S. technology stocks could affect repatriation flows and consequently, the won’s strength, leading to unpredictable currency movements.