US
USD is mixed, trading within its multi-month range, but USD/CNH keeps grinding lower. USD/CNH dropped to its lowest level since March 2023, and we see more downside potential. A continued appreciation of the yuan can help China shift its growth model towards consumer spending by boosting disposable income through cheaper imports.
The People’s Bank of China (PBOC) is not resisting yuan strength but instead managing the currency’s appreciation expectations with a higher-than-forecast USD/CNY fix. USD/CNY fixing was set at 6.9228 vs. Bloomberg survey estimate of 6.8618. The gap between the fixing and forecast was the most positive on record.
US weekly jobless claims data is up next (1:30pm London, 8:30am New York). Initial jobless claims for the week ending February 21 are seen at 216k vs. 206k the previous week, still indicating subdued layoffs.
SOUTH KOREA
Bank of Korea (BOK) delivered a neutral hold. BOK unanimously voted to keep the policy rate unchanged at 2.50% for a sixth consecutive meeting (widely expected) and plans to keep rates at that level for the next six months. KRW dipped a little while the Kospi surged. That divergence in Korean financial markets has been a persistent theme for more than a year.
The Kospi stock index leads global peers, up nearly 50% this year after posting gains of 75% in 2025, powered by the semiconductor upswing and the FX and capital market reform for Korea’s inclusion in the MSCI Developed Markets Index. In parrel, KRW underperformed most major currencies last year and is holding ground at best this year reflecting domestic investors’ appetite for US stocks and bonds.
South Korea’s government announced several measures aimed at curbing those capital outflows. But the Korea-US trade deal reached in July 2025 threatens to encourage further portfolio outflow. Under the trade deal reached last July, South Korea pledged to invest $350bn in the US. Assuming the investment is spread over ten years, that works out to $35bn per year which would be roughly a third of South Korea’s current account surplus.
Nonetheless, the outlook for KRW is encouraging. The currency is significantly undervalued (10% undervalued based on deviation from real effective exchange rate trend), South Korea has a large current account surplus (6% of GDP), and BOK is done easing.
Moreover, South Korea’s inclusion in the FTSE Russell World Government Bond Index (WBGI) begins in April, with monthly increases in the inclusion weight until November. By then, Korea’s expected inclusion weight in the WGBI is 2.05%, making it the ninth largest among all included countries.
JAPAN
JPY recovered some of this week’s losses. Bank of Japan (BOJ) board member Hajime Takata, a staunch hawk, renewed his call for further rate increases. Takata said “I believe the bank should make a further gear shift, and engage in communication that assumes that the price stability target is almost achieved.” BoJ Deputy Governor Himino speech on Monday may offer more color on the timing of the next rate hike move.
The swaps curve price-in less than 10% odds of a 25bps rate hike at the March 19 meeting, and about 70% odds of an April rate increase. Our base case is for the BOJ to resume hiking at the April 28 meeting - after the Shunto spring wage negotiations, which typically wrap up by mid-March.
NEW ZEALAND
NZD/USD is struggling to sustain a move above 0.6000. New Zealand’s ANZ business activity outlook index ticked up in February and remains indicative of a solid recovery in GDP growth. Nevertheless, the RBNZ is in no rush to normalize rates because there is still significant spare capacity in the economy. New Zealand’s output gap is estimated to be -1.5% of potential GDP in Q4 2025.
As such, the scope for RBNZ rate hike repricing in favor of NZD is limited. The swaps curve price in a 25bps rate hike to 2.50% by year-end while the RBNZ projects steady rates at 2.25% through late 2026.
