SEOUL/TOKYO (Reuters) – South Korea’s exposure to a stressed global manufacturing supply chain has knocked its currency – Asia’s most risk sensitive – to over two-year lows as investors use it as a proxy to bet on the economic costs of a protracted U.S.-China trade war.
The won has dropped nearly 6% against the dollar this year, worse than some of its peers, hit also by broader concerns over global growth and growing views the Bank of Korea will soon have to cut rates to support the economy.
As trade tensions flared up between the world’s two largest economies last month and the Chinese yuan threatened to fall past the key 7-per-dollar level, the won slid to near 1,200 per dollar, its lowest since January 2017.
The won is like a proxy currency to not only global growth sentiment but one that’s also related to U.S.-China trade talks, It won’t be easy to keep the dollar/won level of 1,250 should the U.S.-China spat intensify, with possibly additional tariffs, for example.
said Park Sang-hyun, chief economist at Hi Investment & Securities in Seoul.
The spiraling trade war between Washington and Beijing, which has gone beyond tariffs to company blacklists and travel restrictions, makes that scenario highly plausible.
U.S. President Donald Trump has said he expects to meet Chinese President Xi Jinping at the G20 leaders’ summit in Osaka later this month, after bilateral trade talks ended in a stalemate in May, but China has not confirmed any such meeting.
Trade war damage and a softening in global demand will make 2019 the worst year for trade since the financial crisis a decade ago, with only 0.2% growth, said economists at ING.Read More
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