(BFM Bourse) – The Korean currency fell to a 13-year low this week against the imperial dollar. The Taiwan dollar and Thai baht are also plunging. These currencies are suffering from the loss of momentum of the Chinese economy and the tightening of monetary policy by the American Federal Reserve.
The strong dollar is not just torturing the euro or the pound sterling. The Korean won fell Wednesday to its lowest level in more than 13 years against the American currency, in tune with other Asian currencies which are struggling with the meteoric appreciation of the greenback and the slowdown in the Chinese economy.
South Korea’s currency fell as low as 1,395 won to the dollar for the first time since March 2009.
The won is suffering from the pace of monetary tightening by the US central bank (Fed), which has been significantly higher than that of the Bank of Korea in recent months.
China’s difficulties
The spread between the yield on US ten-year government debt and its South Korean equivalent is now close to its lowest level since the start of the coronavirus pandemic.
For Christopher Vecchio, of DailyFX, the South Korean currency also suffers from the fact that a significant part of Korean debt, private and public, is denominated in dollars, which further accentuates the effect of the soaring “greenback”.
The won is also handicapped by the setbacks of China, by far its largest trading partner and which weighs a quarter of its exports. “The collapse of the Chinese real estate sector, the effects of the anti-Covid health policy and the drop in exports (to China) add to the shock of rising energy prices”, explained, in a note, Kit Juckes, from Societe Generale.
Very dependent in terms of energy, South Korea is thus the world’s fourth largest importer of oil, which is, for the most part, denominated in dollars, which penalizes the Korean economy.
Reduced purchasing power
This situation is reminiscent of that of Japan, whose currency, the yen, has also recently recorded record weakness against the main world currencies.
To remain competitive, especially in the face of a China that is allowing its currency to depreciate, the yuan, Japan and South Korea “have to ensure that their currencies remain weak”, argues Christopher Vecchio, which makes their products more attractive to abroad and promotes their exports.
They therefore adapt, according to him, to a depreciated currency, even if it reduces the purchasing power of Korean consumers for imported products.
Another economy in a similar situation, Taiwan, whose currency, the Taiwanese dollar, plunged on Wednesday to its lowest level in three years against the dollar.
Hardly better positioned, the Thai baht, which is currently flirting with its low point for almost 16 years.
(With AFP)
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