UBS Sees Won Strength Ahead on Balance of Payments Flows: USD/KRW Outlook

Investment bank UBS has issued a bullish outlook for the South Korean won, forecasting sustained strength against the U.S. dollar based on favorable balance of payments flows. The analysis, which focuses on structural capital inflows and trade dynamics, suggests the USD/KRW pair may trend lower in the coming months, offering a contrarian view amid broader dollar strength narratives.

Balance of Payments as a Key Driver

UBS analysts highlight that South Korea’s balance of payments — the record of all economic transactions between residents of the country and the rest of the world — is showing a clear surplus trend. This surplus, driven by robust export revenues and steady capital inflows into Korean bonds and equities, is expected to provide sustained support for the won. The bank notes that while the dollar remains strong globally due to Federal Reserve policy and geopolitical risk aversion, the structural flow dynamics in Korea are a counterweight that could push USD/KRW lower over the medium term.

Specifically, UBS points to Korea’s current account surplus, which has remained in positive territory despite global trade headwinds. Additionally, foreign portfolio investment into Korean government bonds and the stock market has been consistent, particularly from investors seeking exposure to Asia’s advanced manufacturing and technology sectors. These inflows create demand for won, putting downward pressure on the USD/KRW exchange rate.

Market Context and Implications

The USD/KRW pair has been volatile in 2025, oscillating between 1,300 and 1,350 won per dollar, influenced by Federal Reserve interest rate decisions, China’s economic slowdown, and geopolitical tensions on the Korean Peninsula. UBS’s call for won strength is notable because it runs counter to the prevailing market consensus that the dollar will remain bid due to higher-for-longer U.S. interest rates.

If UBS’s forecast proves accurate, the implications are broad. A stronger won would reduce import costs for South Korean consumers and businesses, particularly for energy and raw materials priced in dollars. This could help tame domestic inflation and provide the Bank of Korea more room to ease monetary policy if needed. Conversely, a stronger won could pressure export competitiveness for major Korean conglomerates like Samsung, Hyundai, and SK Hynix, whose revenues are heavily tied to overseas sales.

What This Means for Investors and Businesses

For currency traders and corporate treasurers, UBS’s analysis suggests that hedging strategies may need to be adjusted. Exporters who have been benefiting from a weaker won might consider increasing their hedging ratios to protect against a potential appreciation. Importers, on the other hand, may find an opportunity to lock in favorable rates. The forecast also has implications for foreign investors in Korean assets: a strengthening won would enhance the local-currency returns for those holding Korean stocks or bonds when repatriating profits.

UBS’s view is not without risks. The bank acknowledges that a sharp escalation in geopolitical tensions, a sudden reversal in global risk appetite, or a more aggressive Federal Reserve could disrupt the balance of payments flows and weaken the won. However, the base case remains constructive.

Conclusion

UBS’s forecast for won strength based on balance of payments flows provides a data-driven counterpoint to the prevailing dollar-bullish sentiment. While the path is not without risks, the structural surplus in Korea’s external accounts offers a tangible anchor for the currency. Market participants should monitor upcoming trade data and capital flow figures to gauge whether the thesis is playing out. The analysis underscores the importance of looking beyond interest rate differentials to understand currency movements in a complex global economy.

FAQs

Q1: What is the balance of payments, and why does it affect the won?
The balance of payments records all economic transactions between South Korea and the rest of the world. A surplus means more dollars are coming into the country than leaving, which increases demand for won and tends to strengthen the currency.

Q2: How does a stronger won impact Korean exporters?
A stronger won makes Korean goods more expensive for foreign buyers, potentially reducing export competitiveness. Major exporters like Samsung and Hyundai could see lower overseas earnings when converted back to won.

Q3: What could cause UBS’s forecast to be wrong?
Key risks include a sudden escalation in geopolitical tensions with North Korea, a global risk-off event that drives capital outflows from emerging markets, or the Federal Reserve raising rates more than expected, which would strengthen the dollar across the board.