Won falls to 2023 lows as inflation and rates remain concerns

Electronic sign boards at Hana Bank in central Seoul show markets on Friday. [YONHAP]

The won fell to 2023 lows against the dollar as inflation remains high and ahead of a rate-setting meeting in the United States.

A continued trade deficit is also pushing the won down.

Korea's currency was trading at around 1,332 to the dollar on Thursday.

Britain’s inflation was 10.1 percent in March, down from the 10.4 percent in February and above a consensus projection of 9.8 percent in a Reuters poll of economists. Food and non-alcoholic beverages led the price growth.

Hawkish remarks by the New York Federal Reserve chief also raised concerns about the aggressive increase in the federal funds rate.

“Inflation is still too high, and we will use our monetary policy tools to restore price stability,” said New York Fed President John Williams in a speech given before a gathering held by the Monetary Marketeers of New York University Wednesday.

The won is down about 5 percent this year.

A weak currency could negatively affect investment and exports by raising economic uncertainty.

The fall in the won comes despite dollar weakness following the collapse of Silicon Valley Bank in March.

The U.S. dollar index, a benchmark used to measure the value of the dollar relative to other currencies, fell to 101.9 Thursday from around 105 right before the collapse of the U.S. bank.

“The decoupling of the won and the dollar is intensifying,” said Park Sang-hyun, an economist at Hi Investment & Securities in a Thursday report. He cited the growing trade deficit and a potential rate cut by the Bank of Korea in the second half, which could increase the policy rate gap with the United States, as the factors that could be pressuring the won's value.

High volatility was witnessed in other countries facing trade weakness, including Thailand, Argentina and South Africa, a Bank of Korea report read.

Korea reported a trade deficit for 13th consecutive month in March. The monthly trade deficit came in at $4.62 billion.

To reduce volatility, the Bank of Korea and the National Pension Service (NPS) agreed last week to open a currency swap line through the end of the year.

The agreement will allow the state pension operator to borrow up to $35 billion from the foreign reserves of the central bank in exchange for its local currency holdings.

The deal is expected to ease dollar demand in the spot market from the NPS for its overseas investments.

BY JIN MIN-JI [jin.minji@joongang.co.kr]