South Korea’s won dropped below the psychological barrier of 1,200 per dollar level for the first time in more than a year, as concerns over faster inflation and weaker growth weighed on risk appetite.
The won declined as much as 0.5% to 1,200.35 Tuesday morning in Seoul, the lowest level since July 2020. The currency has declined more than 9% this year, making it Asia’s second worst-performer after Thailand’s baht.
The currency has been under pressure since May as the dollar gained and and South Korean authorities tightened restrictions to curb a rise in virus infections. Bearish sentiment around won assets has intensified of late with global funds dumping the nation’s stocks amid concerns over the memory-chip business outlook and expectations for the Federal Reserve to start tapering soon.
“If concerns over rising energy prices continue, the won may extend losses to as low as 1,250 per dollar,” said Ha Keon-hyeong, an economist at Shinhan Investment Corp. “Inflation increases the fear of faster policy normalization and raises the cost for companies,” which will keep weighing on the won.
On Tuesday, South Korea’s central bank held off from a second-straight rate hike, opting instead to monitor the impact of August’s move before continuing its march toward higher borrowing costs.