Korea’s Pension Fund Stops Selling Dollars After Won Rebound

South Korea's National Pension Service has ceased its dollar-selling strategy, implemented over the past five months to bolster the won, as the currency recently reached its strongest level against the dollar since October. The decision to halt dollar sales was triggered by an internal formula within the pension fund, according to sources familiar with the matter.

Analysis

South Korea's National Pension Service (NPS) has concluded its five-month program of selling US dollars, a strategy initially implemented to bolster the Korean won. This decision to halt dollar sales was reportedly triggered by an internal NPS formula, activated after the won appreciated markedly in recent weeks, achieving its strongest valuation against the US dollar since October. The cessation of these interventions suggests the NPS may now perceive the won as having reached a more stable or favorable level, reducing the immediate need for direct currency support. This development is significant for the KRW/USD exchange rate, indicating a potential shift away from active management by one of the market's influential participants and a return to more market-driven dynamics for the currency.

Key Decisions for Investors

• Investors should closely monitor the Korean won's performance to gauge its resilience and trajectory now that a significant source of systematic dollar supply from the National Pension Service has been withdrawn.
• The termination of the NPS's dollar-selling strategy may lead to increased volatility or a new equilibrium for the KRW/USD pair, warranting a review of currency hedging strategies for portfolios with South Korean exposure.
• Consider that this policy shift by the NPS could reflect an internal assessment of improved stability for the won, potentially influencing broader sentiment towards South Korean financial assets.