Bessent's Won Support: A Verbal Catalyst or a Sign of Deeper Pressure?

The immediate catalyst is a rare public intervention. On Wednesday, U.S. Treasury Secretary Scott Bessent posted on social media that he had discussed the won's recent depreciation with South Korean Finance Minister Koo Yun-cheol, calling it "not in line with Korea's strong economic fundamentals." The comments came as the currency was trading around 1,470 per dollar, close to a 17-year low, and just a day before a critical Bank of Korea policy meeting.

The market's reaction was swift. The won gained sharply on his comments, rising as much as 1.15% to 1,462.0 per dollar after ten straight sessions of losses. This marks its first gain in ten sessions and a clear reversal from the 1,470 level it had just reclaimed earlier in the week. The move underscores the currency's vulnerability to high-level signals.

Yet this is a tactical signal, not a fundamental fix. The won had already strengthened to around 1,420 late last year due to government intervention and strategic hedging by the National Pension Service, only to reverse course and slide back toward its weakest level since 2009. The underlying pressures-specifically an imbalance in the local dollar market driven by importer payments and overseas investment-remain intact. Bessent's call for stability is a shot across the bow, but it does not resolve the structural demand for dollars that has been building since the start of the year.

The Mechanics: Why the Won is Under Pressure

The won's weakness is driven by a clear policy constraint and rising inflation risks. The currency has weakened nearly 2% during the first two weeks of the year, a sharp move that directly increases the risk of higher consumer prices. This dynamic has become a central concern for the Bank of Korea (BOK), which flagged inflation as an issue at its November meeting. The result is a significant tightening of the central bank's policy options.

Economists now expect the BOK to keep its key rate at 2.50% unchanged on Thursday, with the next cut pushed to early next year. This shift reflects a decisive change in the central bank's own guidance. The BOK has signaled it may be nearing the end of its current easing cycle, revising its stance to allow for a longer pause. In practice, this means the BOK will now decide whether and when to implement any further rate cuts based on a comprehensive assessment, not a pre-committed path.

The pressure is multifaceted. On one side, the falling won threatens to stoke imported inflation, complicating the BOK's mandate. On the other, domestic factors like elevated expectations for Seoul apartment prices are also limiting the central bank's room for maneuver. The BOK's focus has thus turned to having a stable currency and managing financial stability, not cutting rates.

Bessent's comments do not address these root causes. They are a verbal nudge, not a policy solution. The won's depreciation is a symptom of an imbalance in the local dollar market driven by structural demand from importers and overseas investors. Until that imbalance is resolved, the won will remain vulnerable. The central bank's revised guidance and the economists' consensus show that the immediate path is one of restraint, not relief.

The Setup: Immediate Risk/Reward and Next Catalysts

The immediate risk is clear: Bessent's comments provided a temporary rally, but they do not alter the structural pressures driving the won. The currency's weakness is rooted in a persistent imbalance in the local dollar market from importers and overseas investors, a dynamic that has been building since the start of the year. This fundamental demand for dollars, combined with rising inflation concerns, has already forced the Bank of Korea to revise its guidance and signal it may be nearing the end of its easing cycle. Economists now expect the central bank to keep its key rate at 2.50% unchanged on Thursday, with the next cut pushed to early next year. The won's recent slide is a key input into that decision, not a problem to be solved by a verbal intervention.

The next major catalyst is, therefore, the Bank of Korea's policy meeting on Thursday. The won's trajectory will be a central factor in the BOK's assessment. The central bank has stated it will decide whether and when to implement any further Base Rate cuts based on a comprehensive view, including financial stability. A continued slide in the won, especially if it breaches key technical levels, will strengthen the case for a longer pause and could even prompt more aggressive market stabilization measures.

A key technical level to watch is sustained weakness below 1,470. The won has already reclaimed that level, and further losses could force the government's hand. Analysts have pointed to the possibility of authorities' intervention if the move is too rapid, as seen late last year. However, the market's recent pattern suggests such efforts may have lost momentum, leaving the BOK's policy stance as the primary counterweight.

The tactical setup is fragile. The won's rally from Bessent's comments is a reaction to a signal, not a resolution of the underlying imbalance. The currency's path now hinges entirely on the BOK's decision and the market's response to it. For now, the won remains vulnerable to its structural dollar demand and the central bank's new, more cautious posture.