South Korea is experiencing delays in trade talks with the US, primarily due to concerns about a $350 billion investment package. The key issue is how this package might affect South Korea’s foreign exchange market. South Korea has told the US that it cannot match Japan’s $550 billion investment deal. The country struggles to manage a similar arrangement and can only secure about $20 billion to $30 billion yearly for such investments.

Managing a Large Fund

Kim Yong-beom, the chief of staff for policy in South Korea, explained that the main worry is managing the $350 billion within the foreign exchange market. South Korea is asking the US to address these concerns to avoid an economic shock. The delays in negotiations arise from both countries trying to work through these challenges. Coordinating such a large fund risks causing a short-term shock to South Korea’s economy. The ongoing delays in the trade talks between the US and South Korea introduce a lot of uncertainty for the Korean Won (KRW). This deadlock over the $350 billion fund is likely a primary factor behind the expected volatility in the currency market in the coming weeks. Traders should pay close attention to the USD/KRW exchange rate in this context.

Potential Impact on USD/KRW Exchange Rate

If there is a massive capital outflow to fund this deal, it will put significant upward pressure on the USD/KRW exchange rate. This situation suggests a weakening of the Won, so we should prepare for this possibility. Strategies such as buying USD call options or selling KRW put options are sensible ways to respond to this outlook. In August 2025, South Korea’s total foreign reserves were around $418 billion, highlighting how substantial the $350 billion fund is. This situation could create more stress than what occurred during the global rate hikes in 2022, when the Won briefly weakened past 1,400 to the dollar. A similar deal could lead to even sharper movements. Since the timing of any agreement is uncertain, one of the best trading strategies is to focus on volatility itself. The ongoing uncertainty is likely to keep implied volatility high for the USD/KRW pair, making strategies like buying option straddles appealing. These could profit from large price swings in either direction once negotiations are resolved. The capacity for South Korea to manage only $20 to $30 billion in outflows annually shows the market’s vulnerability. Any news indicating US pressure on South Korea to accept the deal will probably result in a swift sell-off of the Won. It’s vital to watch for any headlines indicating a change in the existing stalemate. Create your live VT Markets account and start trading now.

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