The South Korean won gained modestly against the US dollar on Thursday after the Bank of Korea raised interest rates for the first time in three and a half years. The central bank lifted its policy rate by 25 basis points to 2.75%, a move widely anticipated by markets as policymakers sought to address persistent inflation and support a weaker currency.
In Asian trading, the US dollar-won pair slipped to around 1,485 after giving back an earlier advance. The won had already been trending stronger for more than two weeks, as investors largely positioned for a tightening move from the central bank. Officials also signaled that further increases remain possible if price pressures fail to ease meaningfully.
The Bank of Korea’s stance suggests that it remains focused on restoring price stability, even as domestic demand indicators warrant close monitoring. Policymakers appear concerned that sustained growth in income and spending could add to inflationary pressure, especially if broader economic conditions stay firm. The rate increase therefore serves both as a response to current inflation and as a warning that policy may remain restrictive for some time.
The US dollar, meanwhile, continued to struggle to recover from a recent sell-off. The dollar index was slightly higher near 100.50. The greenback has weakened over the past two sessions after softer US inflation data prompted traders to scale back expectations for further Federal Reserve tightening.
Market pricing now points to only a 10% chance of a Fed rate hike at the July meeting, down sharply from 31% a week earlier. That shift has reduced support for the dollar and helped currencies such as the won outperform in the near term.The US dollar remained under pressure on Thursday, with the US Dollar Index consolidating near 100.50 in Asian trading, close to the nearly four-week low reached in the previous session. Softer inflation readings in the United States have reduced expectations for additional Federal Reserve tightening, though losses in the greenback have been been restrained by renewed geopolitical risks and firmer oil prices.
Recent data reinforced that shift in market expectations. The Producer Price Index fell 0.3% in June, following a revised 0.6% gain in the prior month, and came after a weaker-than-expected Consumer Price Index report on Tuesday. Together, the figures eased fears that inflation would remain persistent enough to keep interest rates elevated for longer. That has weighed on the dollar and supported the view that its near-term outlook remains fragile.
At the same time, investors have become more cautious about taking aggressive bearish positions on the currency because of mounting tensions between the United States and Iran. The confrontation has intensified this week, with both sides carrying out fresh attacks. US strikes targeted Iranian missile and drone infrastructure, while Tehran responded with drone and missile attacks on facilities linked to the United States across the region.
The risk of a broader conflict has also raised concerns about global energy supply. Disruptions to maritime routes, including the Strait of Hormuz, could tighten oil markets further and sustain inflationary pressures. That backdrop has helped limit the dollar’s decline even as rate-hike expectations cool.
Markets are still pricing in the possibility of at least one further 25-basis-point increase by the Federal Reserve, which is preventing a more decisive shift against the currency. For now, traders are waiting for additional US economic releases later in the day to provide clearer direction.
