Global Market | South Korea’s NPS suspends FX hedging as won hits near two-year high: Reports

South Korea’s National Pension Service (NPS) has suspended its foreign exchange hedging operations as the won strengthened to a near two-year high, a market source told Reuters on Monday.

The NPS, the world’s third-largest public pension fund and a major participant in South Korea’s financial markets, had been conducting currency hedging operations flexibly this year. The fund had also increased its hedging limit as policymakers sought to counter sustained weakness in the won.

The suspension could alter dollar supply and demand dynamics in the domestic foreign exchange market. NPS hedging activity typically involves selling dollars, thereby increasing dollar supply in the onshore market.


A second market source said the pension fund’s dollar purchases could be conducted through both regular transactions and trades based on the market average exchange rate.

The NPS declined to comment on its foreign exchange policies, Reuters reported.

Won rallies sharply against dollar

The move comes as the won has staged a sharp rebound, raising concerns among market participants and authorities about excessive one-way volatility.

Earlier on Monday, the won strengthened as much as 1.15% to 1,334.7 per dollar, its strongest level since October 4, 2024. It later pared some gains to trade at 1,346.2 per dollar as of 0321 GMT, according to Reuters.

The currency has gained about 16% against the dollar so far this quarter, reversing a prolonged period of weakness. Before the recent rally, the won had declined for four consecutive quarters and had fallen to 17-year lows.

Authorities intervene amid dollar supply concerns

The sharp appreciation of the won has also come as South Korean authorities have taken steps to manage foreign exchange market conditions.

Foreign exchange authorities recently purchased about $20 billion in dollars sold by chipmaker SK Hynix following the company's U.S. share listing, Reuters reported.

The NPS’s decision to suspend hedging could therefore have implications for the balance between dollar supply and demand in the domestic market, particularly as the won’s rally has accelerated.

NPS holds $1.39 trillion in assets

The NPS remains one of the most influential institutional investors in South Korea. It held 1,865.6 trillion won ($1.39 trillion) in assets at the end of June, with overseas investments accounting for 54% of its total portfolio.

Given the size of its overseas holdings, the pension fund’s foreign exchange transactions can have a meaningful impact on the won-dollar market. The latest shift in its hedging operations comes at a time when currency movements are being closely watched by policymakers and investors amid the won’s rapid appreciation.

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