Bank of America (BofA) forecasts a strengthening of the Korean won versus the U.S. dollar by the conclusion of 2026, setting a target exchange rate of 1,395 USD/KRW. This projection comes despite ongoing downward pressure on the currency brought about by recent market dynamics.
The bank’s analysis highlights that current government efforts have yet to effectively halt the won's depreciation, even amid public remarks from the U.S. Treasury drawing attention to the won’s weakness. Political forces are expected to increasingly push for strategies to stabilize the currency as pressure mounts.
According to BofA, substantial portfolio outflows among retail investors remain a principal factor contributing to the won's vulnerability. In response, the Korean government implemented a capital gains tax reduction on foreign equity sales effective December 23, 2025. This measure is viewed by the bank as an initial attempt to address these outflows.
BofA suggests that additional tax-related incentives might be necessary to rebalance supply-demand conditions within Korea's foreign exchange framework. Korean investors notably concentrate their foreign equity portfolios in U.S. technology companies, signifying a potential catalyst for won appreciation.
The bank’s analysis further indicates that any significant valuation corrections within the U.S. technology sector could lead to repatriation of capital to Korea. Such movements could materially strengthen the won.