Bank of America has released a forecast indicating that the Korean won is expected to firm against the U.S. dollar over the course of 2026, reaching a target exchange rate of 1,395 USD/KRW by the end of the year, despite the currency currently facing downward pressure.
The bank's analysis notes that existing government interventions have not yet been sufficient to arrest the won's decline, even as the currency's weakness has come under public scrutiny from the U.S. Treasury. This exposure is likely to increase political impetus within Korea aimed at stabilizing the currency moving forward.
Central to the depreciation is significant portfolio outflows by retail investors, which Bank of America identifies as the main factor undermining the won. In response, the Korean government enacted a capital gains tax reduction on foreign equity sales effective December 23, 2025, viewed by the bank as an initial move to address these outflows.
Bank of America suggests that additional tax-based incentives could play a crucial role in restoring equilibrium between supply and demand in the Korean foreign exchange market. The bank further points out that Korean investors hold a substantial portion of their foreign equity assets in U.S. technology stocks, a concentration that could serve as a trigger for capital repatriation.
According to the bank's projections, in the event of a notable correction in the U.S. technology sector, investors might redirect funds back to Korea, exerting upward pressure on the won’s value throughout 2026.
This outlook underscores the complex interplay between government policy, foreign investor behavior, and sector-specific risks that will influence Korea's currency dynamics in the near term.