"KRW-USD Exchange Rate Expected to Reach 1,250 Won Despite Korean Investment Remittances to the U.S." Here's Why

Citibank: "Current Account Surplus May Reach 22.2% of GDP Between 2026 and 2028"

Major Current Account Surplus to Drive Long-Term Won Strength

U.S.-Bound Investment to Be Funded Through Foreign Reserve Returns, Limiting Market Impact

Increased Likelihood of Dollar Purchases by FX Authorities if Exchange Rate Falls Below 1,250–1,300 Won

There are projections that the KRW-USD exchange rate will reach around 1,250 won in the mid- to long term, even with outbound investment remittances from Korea to the U.S. The analysis suggests that a large current account surplus, expected to reach 22.2% of Korea's gross domestic product (GDP) between 2026 and 2028, will drive a long-term appreciation of the won. It is expected that the Korean government's investment funds for the United States will be sourced through returns from foreign reserves management and the issuance of government-guaranteed bonds, so the short-term impact on the foreign exchange market will be limited. In fact, experts point out that if the exchange rate rapidly drops below the 1,250–1,300 won level, the foreign exchange authorities may intervene to buy dollars.

Jinwook Kim, Chief Economist at Citibank, stated in a recent report that, "On the back of a surge in semiconductor exports, the trade surplus in September reached a record high of $49.9 billion," adding, "Due to this strong trade surplus, we have revised our long-term KRW-USD forecast from 1,400 won to 1,250 won."

Citibank projected that, owing to a prolonged memory semiconductor upcycle, the current account surplus will remain at 22.2% of GDP between 2026 and 2028. This is a significant increase compared to the 2016–2025 average of 4.2% of GDP. Kim noted, "Semiconductor exports grew by 22% last year and by 189% this year (year-on-year); we expect another 46% increase next year," and added, "The expansion of semiconductor exports driven by higher prices will contribute 3.6 percentage points to real GDP and 15.6 percentage points to nominal GDP this year."

Although the growth rate of semiconductor exports is expected to moderate in the first quarter of next year to 105% (year-on-year) and to 54% in the second quarter due to base effects, it is forecast to remain at around 200% in the fourth quarter of this year. Kim emphasized, "Long-term agreements (LTAs) will enhance the sustainability of export growth and the current account surplus," adding, "As a result, the Bank of Korea may be prompted to revise its estimates for potential economic growth and the neutral interest rate upwards for 2026–2028." The continued structural strength of the current account surplus is forecast to sustain a strong won (lower exchange rate) against the dollar through 2028.

Meanwhile, the analysis suggests that investment remittances to the U.S. resulting from the Korea-U.S. trade agreement will have only a limited short-term effect on the foreign exchange market. Recently, the Korean government remitted the first tranche of investment funds, $2.4 billion, for its first project in the U.S. — the construction of a combined-cycle power plant in Texas. Further remittances will be made for the second project, which involves building eight large nuclear power plants, depending on progress. Kim said, "The government plans to meet its annual funding needs (up to $20 billion a year) through returns from foreign reserves (which totaled $442 billion as of August 2026) and the issuance of government-guaranteed foreign-currency bonds," and added, "Its short-term impact on the foreign exchange market will be limited."

On the contrary, if the exchange rate rapidly falls below the 1,250–1,300 won range, foreign exchange authorities may intervene in the spot market by buying dollars. Kim observed, "The Korean foreign exchange authorities have previously purchased dollars in the spot market whenever the exchange rate stood at or below the 1,250-won level," and added, "It is known that the Bank of Korea's foreign exchange trading profits surged more than fivefold last year as the spread between purchase and selling prices reached about 200 won. Last year, when the authorities intensified their smoothing operations (fine-tuning interventions), the exchange rate hovered between 1,420 and 1,470 won," adding, "Foreign exchange authorities may opt to expand the level of foreign reserves in the coming years."

This content was produced with the assistance of AI translation services.