The spook of taper tantrums in emerging markets from accelerated monetary tightening in the United States coupled with the tit-for-tat tariff war between G2 spilled over to the Korean capital market, pushing the Korean won to a seven-month low and below the 1,100 threshold against the greenback.
The Korean won lost ground amid U.S. dollar strengthening after the U.S. Federal Reserve warned the market of two more hikes during the remainder of the year instead of one as previously estimated earlier in the year in its June 13 meeting that delivered the second 25-basis-point increase this year.
The dollar finished Tuesday at 1,109.1 won after breaking above the 1,100 won for the first time in seven months on Monday to close at 1,104.8 won upon news of intensified trade war between the United States and China.
On Friday, U.S. President Donald Trump announced to slap 25 percent tariffs on Chinese imports and China vowed retaliation of equal scale, leaving the world’s two largest economies on the verge of all-out trade war. On Monday, Trump threatened China with additional tariffs on $200 billion of Chinese goods.
Market experts predict investors would cut investment in risky assets, such as emerging market currencies including Korean won, amid intensifying trade dispute between the U.S and China on top of the U.S. Fed’s tightening move. Instead, the demand for U.S dollar would grow bigger amid market’s risk-averse mode, experts say.
The heightened worries over a U.S-China trade war also weighed on the Korean stock market. Offshore investors have net sold 1.3 trillion won worth of Korean stocks for three trading days in a row since last Thursday following U.S. Fed’s rate hike earlier last week. The Korean stock market was closed on Wednesday for local elections.
By Yoon Won-sup and Cho Jeehyun
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]