Bank of America (BofA) released a report expressing concerns about the sustainability of the Korean won’s recent performance, predicting that the currency is likely to face challenges in the coming months due to potential global trade tensions and Korea’s 2025 export outlook.

The report comes on the heels of the inauguration of the second Trump administration, which did not immediately impact import tariffs on China or other U.S. trading partners. This status quo prompted markets to remove long US dollar hedge positions, particularly against the Chinese yuan (CNH), causing the value of the yuan to decline significantly. The CNY fixing fell to 7.17, down from a stable level of 7.19 since early December 2024.

Despite the boost in aid, BofA analysts warn that it should not be interpreted as a change in the fundamental outlook for trade policy. President Trump has raised the possibility of a 25% tariff on goods from Canada and Mexico, which could escalate global trade tensions.

In Korea, the government is actively working to maintain the stability of the Korean Won (KRW) in the face of political uncertainty and to maintain the confidence of international investors. The National Pension Service (NPS) and the Bank of Korea (BoK) are pursuing strategies to mitigate the weakening exchange rates, including adjusting collateral ratios and direct market interventions.

These efforts have temporarily made the Korean won the best-performing Asian currency so far this year, reversing its position as the worst-performing currency over the past 12 months. However, BofA analysts believe this trend is unlikely to continue given their negative outlook on Korea’s export growth and the potential impact of U.S.-China trade tensions on the country.

Based on these analyses, BofA has initiated a long trade recommendation, with an entry point at 1442, a target at 1480 and a stop at 1420. The recommendation is based on the expectation of continued trade uncertainty in Korea, although potential risks to this trade include prolonged negotiations trade between the U.S. and China, and a stronger-than-expected response from the Korean government to ensure currency stability.

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