South Korea’s grim economic reports have pushed the Korean won to a two-year low against the U.S. dollar but the won is likely to regain its ground in the second half as economic conditions improve, according to local analysts.
The Korean won fell 0.83 percent against the dollar to 1,160.50 Thursday, the lowest since January 2017, following an unexpected contraction in the country’s first-quarter economic growth.
Asia’s fourth-largest economy shrunk by the most in a decade, down 0.3 percent from the previous quarter, as exports that had fueled its past growth appear set for a fifth straight month of decline amid softer demand for semiconductors and slowing sales to its biggest trading partner China.
The Korean won lost 1.6 percent against the greenback over the two-day period until Thursday. It saw a slight gain Friday morning, rising 0.03 percent to 1,160.20.
Local analysts predict the weakening trend will ease in the second half of the year.
Meritz Securities in a report released on Friday maintained this year’s average at 1,075 won versus the greenback by predicting a stronger won in the latter half. It cited various factors behind the current weak won, including the lower euro from Eurozone’s disappointing economic data, the won’s weakened correlation with the Chinese yuan, and Korea’s possible policy rate cut amid growing recession concerns.
But it expected things to clear up in the second half once the Korean government’s planned $6 billion stimulus starts to kick in and economic conditions in China and Europe improve. It projected the won to start its advance following the release of Korea’s second-quarter economic figures, the signing of a U.S.-China trade deal, and the gradual strengthening of the euro on the Eurozone’s economic recovery.
KTB Investment & Securities also described the won’s recent dip as “overshooting” and expected it to fall in the range of 1,100-1,140 won in the latter half.
In its report issued Friday, the brokerage said the recent strengthening of the U.S. dollar was driven by increased concerns of the financial outlook of other major economies. But it expected this gap to close in the coming months as the Eurozone economy starts picking up. It also blamed the won’s sharp fall to the U.S. announcement earlier this week to end all waivers on Iranian oil imports, a move that pushed up crude demand in Korea, one of Iran’s major buyers.
It expected the won to recover from its plunge in the second half and fluctuate at the 1,120 won level before resting at the 1,100 won range by the year-end.
By Jung Hee-young and Kim Hyo-jin
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