News ID: 252803
Published: 1041 GMT May 14, 2019

Korean won to face further difficulties due to trade dispute, weak economic performance

Korean won to face further difficulties due to trade dispute, weak economic performance
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The South Korean won, one of the world's worst-performing currencies over the past month, may further lose ground down the road, possibly flirting with the 1,200-won threshold, given a slew of factors pointing in that direction, although its current downward momentum may ease in the near term, analysts said on Tuesday.

On Monday, the local currency tumbled 10.5 won to close at 1,189.30 to the US dollar, marking a more than two-year low to the greenback, Yonhap News Agency wrote.

Over the past month, the won lost some 4.6 percent to the US dollar, sharper than the Chinese yuan's 2.7 percent fall, according to industry data.

"The market sentiment is so risk-averse, and the won-dollar rate will attempt to further rise," Jun Seung-ji, an analyst at Samsung Futures Co., said.

"The Chinese yuan's moves, foreign investors' actions on the local stock market, the currency authorities' response, should be considered."

The Korean won has been on the weak side since the world's two largest economies — the US and China — reopened a trade dispute.

Washington and Beijing ended their high-stakes trade negotiations Friday without any agreement. The US immediately raised the stakes by increasing its tariffs on some $200 billion worth of Chinese imports to 25 percent from 10 percent.

Beijing hit back with a similar plan to impose higher tariffs on $60 billion worth of US goods from June 1, also sending their trade negotiations into a haze.

The escalating clash between the world's two largest economies over trade has sent jitters throughout the globe in the past few weeks.

South Korea's benchmark KOSPI plunged 7.5 percent in less than a month from the year's high of 2,248.63 posted April 16 to 2,079.01 Monday. The local stock market rebounded slightly on Tuesday after swerving in and out of negative terrain.

Adding further downside pressure on the currency is the country's weaker than expected economic performance in the first quarter.

The South Korean economy unexpectedly contracted 0.3 percent in the first three months of the year from the previous quarter, marking the worst performance in a decade, the Bank of Korea said.

Along with the sullen growth data, an extended slump in exports is prodding traders and companies to buy safer assets, such as the greenback.

Seoul's outbound shipments have been shrinking for five consecutive months as of April with its shipments to China, the world's largest importer of South Korean products, dipping for six straight months, a serious problem for the country that heavily depends on exports for growth.

Another problem is that the dip in the local stock market may further push away foreign investors, again driving up demand for hard currency.

Last week, foreigners dumped a net 312 billion won ($263 million) worth of local stocks. They offloaded a net 138 billion won on Monday and again 285 billion won on Tuesday.

South Korea's policymakers have repeatedly said they stand ready to intervene, if necessary, to curb the won's sharp fall in a short period, insisting the fluctuation in the currency market may have been caused by what they called a temporary issue with limited impact that is still amendable.

"The direct impact (of the US-China trade dispute) on the real economy continues to remain limited as the (US) tariffs will be raised on products that depart China after May 10," Vice Finance Minister Lee Ho-seung said Monday.

Other officials noted it may take up to four weeks before the increased US tariff on Chinese goods take effect, apparently implying the two sides may strike a deal in the meantime.

"Going forward, the dollar's strength will ease to some extent, and a US-China trade deal may be reached before the end of this year, which will help the won-dollar rate take a turn," Jun-Kyu-yun, an analyst at Hana Financial Corp., said.

 

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Resource: Yonhap News Agency
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