(Bloomberg) -- The threat of war may not be out of the picture but Asia's top-performing currency is still seen as raring to go in 2018.
Bets are on for South Korea's won to climb past any weakness as the risk of a conflict eases after Pyongyang called for talks with its southern neighbor, notwithstanding the current standoff with the U.S., according to Kiwoom Securities Co. The won will be supported by rising demand for South Korean technology exports, quickening economic growth and increased odds of further policy tightening, said Christopher Wong, senior currency strategist at Malayan Banking Bhd. in Singapore.
“The North Korea risk should now be considered a neutral variable whereas it was seen as a factor” that weakened the won in the past, said Kim Yumi, a market strategist at Kiwoom Securities in Seoul. “Investors can set aside the North Korea risk for now and focus on trends in the dollar and euro.”
Dollar-won is set to break below a major monthly trendline that began at the start of the global financial crisis in late 2007. On Tuesday, the won vaulted to its strongest level since October 2014, defying warnings the rally may be overdone. It slipped half a percent Wednesday to 1,066.35 per dollar on concerns the government may intervene.
As Pyongyang's olive branch doesn't extend to the U.S., won bulls may have to put up with more exchanges between the two nations this year. President Donald Trump was quick to tweet he has a “much bigger and more powerful” nuclear button after North Korean leader Kim Jong Un reminded the U.S. it could strike with a nuclear bomb if necessary.
South Korea's currency strengthened almost 13 percent in 2017, its best annual performance since 2004. The gains are even more impressive when one takes into account the slew of North Korean provocation throughout the year, including missile tests and posturing, as well as Trump's combative retorts.
To contact the reporters on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net, Hooyeon Kim in Seoul at hkim592@bloomberg.net, Michael G. Wilson in Sydney at mwilson176@bloomberg.net.
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui
©2018 Bloomberg L.P.
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