Won hits 2023 lows as CPI, PCE and PPI ignite rate fears

Finance

Published: 27 Feb. 2023, 17:46 Updated: 27 Feb. 2023, 17:55

Won hits 2023 lows as CPI, PCE and PPI ignite rate fears

A screen in Hana Bank's trading room in central Seoul on Monday shows the foreign exchange market closing above the 1,320 mark for the first time since December 7 and Kospi closing at 2,402.64 points, down 20.97 points, or 0.87 percent, from Friday's close. [YONHAP]

The won hit 2023 lows on Monday as key inflation indicators published Friday came in higher than expectations.

It was trading at 1,315.0 against the dollar when the foreign exchange market opened on Monday and weakened throughout the session to end at 1,323 won, up 18.2 won from Friday’s close to pass the 1,320 mark for the first time since December 7.

Renewed inflation fears reignited concerns about the U.S. Federal Reserve continuing to raise rates and drove investment funds toward the dollar and other safe-haven assets.

The U.S. Commerce Department announced Friday that personal consumption expenditures (PCE) for January rose 0.6 percent, beating expectations of 0.5 percent. Core PCE excluding the volatile energy and food rose 0.6 percent, beating the 0.4 percent expectation.

January PCE was higher than the 0.2 percent in December and 4.7 percent higher on year.

U.S. inflation data released last week showed that its consumer price index (CPI) advanced by 0.5 percent to also beat the expectations of 0.4 percent. The inflation was at 6.4 percent in January, up 0.2 percentage points from expectations.

The two higher-than-expected numbers indicating the consumer sentiment uptick backed Fed Chair Jerome Powell’s remarks on the fight against inflation taking “a significant period of time” earlier this month.

In Korea, the central bank kept its policy rate unchanged at 3.50 percent on Thursday, but Bank of Korea Gov. Rhee Chang-yong made clear that it's not the end of rate increases.

“Today’s decision could be understood as returning to the usual way in the past,” Rhee said during a press event following the rate-setting meeting held in central Seoul that day, adding that it is normal to pause after a rate change to examine the need for further increases.

Of the seven Monetary Policy Board members, five kept the door open for another 25 basis points increase, according to the central banker.

The board had rapidly upped the rate by a total of 300 basis points since it started the monetary tightening in August 2021.

Stocks fell and the benchmark Kospi sank 20.97 points, or 0.87 percent, to finish at 2,402.64 on Monday. Trading volume was moderate at 350.2 million shares worth 6.52 trillion won ($4.93 billion), with decliners far outnumbering gainers 659 to 218.

Shares closed lower across the board, with tech and bio firms leading the decline.

Samsung Electronics fell 1.31 percent to 60,500 won, with battery maker LG Energy Solution losing 0.6 percent to 508,000 won.

Samsung Biologics dipped 1.66 percent to 770,000 won. Hyundai Motors slid 0.35 percent to 173,000 won.

Bond prices, which move inversely to yields, closed lower. The yield on three-year government bonds rose 11.5 basis points to 3.673 percent, and the yield on the benchmark 10-year government bonds climbed 7.0 basis points to 3.951 percent.

BY SOHN DONG-JOO, YONHAP [sohn.dongjoo@joongang.co.kr]