Won hits over 13-yr low following disappointing U.S. inflation data, rate hike woes

The South Korean currency on Wednesday tumbled below the 1,390 won mark against the greenback for the first time in over 13 years as the higher-than-expected inflation data in the United States stoked worries over the Federal Reserve’s more aggressive monetary tightening.

The local currency closed at 1,390.9 won against the U.S. dollar, down 17.3 won from the previous session’s close. The won dipped to as low as 1,395.5 at one point.

This marked the first time the won has fallen through the 1,390 won mark since March 31, 2009.

The tumble came hours after the U.S. government announced the country’s consumer price index jumped 8.3 percent in August from a year earlier, higher than market expectations of an 8 percent rise.

The latest inflation data disappointed investors hoping to see eased inflation pressure in consideration of recent oil price declines and stoked worries the Federal Reserve will push for more aggressive monetary tightening down the road.

Market experts predict the Fed will likely deliver at least a 75-basis-point rate hike next week following increases of the same magnitude in June and July to tame runaway inflation.

The gloomy data battered U.S. shares overnight. The Dow Jones Industrial Average sank 3.94 percent, and the tech-heavy Nasdaq dived 5.16 percent. Seoul’s benchmark Korea Composite Stock Price Index also tumbled 1.56 percent Wednesday.

The government said that it will beef up monitoring of local financial markets.

“Growing uncertainties over major nations’ potential interest rate hikes have caused greater financial market volatility both at home and abroad,” First Vice Finance Minister Bang Ki-sun said during an emergency economic task force meeting earlier in the day.

He called for the close monitoring of the financial and the foreign currency market with “extra caution” and reviewing all measures available to deal with the volatility.

The won has been under downward pressure, as the dollar has gained ground against major currencies while investors are expanding dollar holdings seen as safer assets amid worries that monetary tightening could tip the U.S. economy into a recession.

The won has depreciated over 14 percent against the dollar so far this year.

Uncertainty over South Korea’s economy, slowing exports growth and rising trade deficit are also adding to woes over the future trajectory of the local currency.

The country posted a trade deficit of US$9.47 billion last month, the largest amount to date, as imports jumped 28.2 percent on-year to a record high of $66.15 billion.

The foreign exchange market has been closely watched as the Seoul government worries that the won’s continued slide could aggravate efforts to keep a lid on fast rising inflation here by making imports more expensive.

The Bank of Korea, the country’s central bank, earlier said the won appears to be depreciating at a fast pace considering the country’s economic fundamentals, calling for the need to step up monitoring of market situations.