Korean won dips to more than 2-yr low on concerns over trade spats, Fed outlook

The value of the Korean currency is decreasing. Gettyimagesbank

The South Korean currency plunged to a more than two-year low against the U.S. dollar Friday as risk-off sentiment prevailed amid concerns over an apparently intensifying trade spat between the world's two largest economies, as well as South Korea's own dispute with Japan.

The local currency closed at 1,198.0 won against the dollar, down 9.5 won from the previous session's close.

The reading is the lowest since Jan. 9, 2017, when the won-dollar exchange rate came to 1,208.30 won to the greenback.

The won's sharp drop came amid fears of a renewed U.S.-China trade dispute.

On Thursday (Washington time), U.S. President Donald Trump said his country will soon begin imposing 10 percent tariffs on an additional US$300 billion worth of Chinese imports.

Washington has been imposing 25 percent tariffs on $250 billion worth of Chinese goods since the start of June, with China taking steps to reciprocate some time later.

The two countries are the largest importers of South Korean products. Seoul's outbound shipments have been on a steady decrease since December, plunging 11.0 percent on-year in July.

Adding to uncertainty hanging over the South Korean economy, Japan took South Korea off its list of trusted trading partners, significantly expanding its export curbs on South Korea that began early last month, when it imposed tougher restrictions on shipments of three key materials used in the production of semiconductors and display panels.

"The U.S.-China trade dispute is once again weighing on the local stock market while the possibility of Japan removing South Korea from its whitelist is also adversely affecting investor sentiment," No Dong-gil, an analyst at NH Investment & Securities, said, noting the departure of foreign investors from the local market may further drive up the demand for hard currencies.

The weakening of the won also comes despite a recent U.S. rate cut, the first since the 2008 global financial crisis.

Shortly after the U.S. Fed slashed its federal fund rates by 25 basis points to a range of 2.0 percent and 2.25 percent, Federal Reserve Chairman Jerome Powell said the cut did not signal the start of a long series, though it may not be the only one.

South Korea's own policy rate currently sits at 1.50 percent after a 25-basis point cut by the Bank of Korea late last month.

For developing countries, such as South Korea, a lower rate than that of more advanced economies can often become a cause of foreign investment outflow.

"The market expected (the U.S. Fed) to offer a more dovish outlook on future rate reductions, but Chairman Powell largely remained neutral," Min Kyong-won, an analyst at Woori Bank, said.

"The drop in the won's value only narrowed (Thursday) as investors began to sell dollars after the won-dollar exchange rate breached the 1,190-won level," the analyst added. (Yonhap)