The South Korean Won (KRW) is facing challenges due to uncertainty around South Korea’s $350 billion investment plan in the U.S. and ongoing trade talks. Since a preliminary trade agreement was announced on July 30, the KRW has not performed well.
There are worries that this large investment may lead South Korea to invest more in U.S. securities, which could hurt the KRW. Additionally, the details of the $350 billion investment plan are unclear, adding to the uncertainty in the U.S.-Korea tariff negotiations.
South Korean President Lee Jae Myung has cautioned that finalizing the trade deal with the U.S. could take longer than expected. Despite these uncertainties, the USD/KRW exchange rate seems overextended. South Korea currently enjoys a current account surplus of 5.8% of its GDP, and the Bank of Korea is unlikely to lower interest rates further, as reflected in the swaps curve for the next two years.
South Korea also has a strong foreign exchange reserve of over $400 billion, which is about 22% of its GDP, supporting the currency’s value. The daily trading volume for the KRW stands at $171 billion, indicating a healthy level of activity.
Recently, the Korean won has lagged behind other currencies, mainly due to the ongoing uncertainty over the trade deal with the U.S. Questions about the $350 billion investment are creating a short-term negative sentiment. For traders in derivatives, this situation highlights a clash between negative news and strong underlying economic conditions.
Implied volatility on one-month USD/KRW options has jumped to 11.5%, a level not seen since early 2020 during the pandemic. As the exchange rate approaches 1450, we feel the pair is technically overbought and could face a sharp correction if a deal is reached. In this climate, selling expensive, far-out-of-the-money call options could be an attractive but risky way to earn premium.
It’s essential to keep an eye on the fundamentals. South Korea reported a current account surplus of over $8 billion for September 2025, showing its strong external position. The Bank of Korea has over $400 billion in reserves, providing a solid tool to prevent significant declines in the currency. Their recent statements suggest a cautious approach, which should help stabilize the won in the medium term.
Attention is now on the upcoming G20 summit in mid-November, where leaders may finalize details of the trade deal. With the risk of either a rally if the deal is successful or further declines if it is delayed, traders might find it wise to consider long volatility strategies. Buying a one-month USD/KRW straddle could allow traders to benefit from significant price movements in either direction without needing to predict the outcome accurately.
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