Sep 23 2026 10:35 PM EST

Euro‑Won Pair Slides 11% as ECB Tightening and Won Weakness Diverge

The EUR/KRW cross‑currency fell -11.3% over the past three months, reaching a spot rate of 1,555.53. The move reflects a widening euro‑won differential as the European Central Bank (ECB) tightened policy while the South Korean won continued to weaken despite Bank of Korea (BOK) rate hikes.

ECB Rate Hike Narrows Euro‑Dollar Differential

On 10 September 2026 the ECB raised its deposit facility rate to 2.50%, the main refinancing rate to 2.65% and the marginal lending facility to 2.90%. The hike was the second of 2026 and was justified by headline inflation of 3.3% in August, driven by a 14.3 % annual rise in energy prices. Markets priced a roughly 49 % chance of another ECB increase in October and an 89 % probability of at least one more hike by year‑end, compressing the euro‑dollar rate‑differential to about 100‑125 bps.

Bank of Korea Tightening and Won Weakness

The BOK lifted its base rate twice in 2026, first to 2.75% in July and then to 3.00% in September. Despite the hikes, the won weakened roughly 6 % versus the US dollar in 2026, with the USD/KRW hovering near 1,530. Heavy capital outflows – including net dollar sales by the National Pension Service of USD 1.745 bn in Q3 2026 – kept the currency under pressure, offsetting a record semiconductor export surge.

Capital Outflows and Risk Sentiment

The won’s weakness is amplified by a persistent US‑dollar strength, reflected in the Fed’s target range of 3.50‑3.75 % and elevated US Treasury yields. Risk‑off episodes have favoured the dollar, widening the euro‑won spread. In contrast, the euro’s performance has been muted; EUR/USD briefly slipped below 1.1600 after the ECB decision but recovered, indicating that euro‑area growth – now forecast at 0.9 % for 2026 – is providing some support despite higher inflation expectations.

Outlook and Risks

The EUR/KRW trajectory will depend on three variables: (1) further ECB policy moves – markets still price around 60 bps of additional tightening by April 2027; (2) the BOK’s ability to curb capital outflows and whether another hike to 3.25 % materialises; and (3) global risk appetite, especially the direction of US monetary policy and oil prices (Brent above $100 /bbl). Upcoming data points – US CPI on 11 September and the Fed’s decision on 16 September – could shift the euro‑dollar differential and, by extension, the euro‑won pair. A softer US inflation print would reduce dollar strength, potentially narrowing the spread, while a surprise rise in euro‑area core inflation could sustain ECB tightening and support the euro.