The South Korean won is weakening against some of its major currency competitors on Tuesday as macroeconomic data came into focus. The won has had a disappointing year so far, slumping in the aftermath of the coronavirus pandemic and disappointing economic figures. Is a rebound in sight amid its first recession in nearly 20 years?
For the seventh consecutive month, the IHS Markit manufacturing purchasing managersâ index (PMI) contracted, although it jumped from 43.4 in June to 46.9 in July. Despite a gradual resuscitation in factory activity, new orders, export sales, and employment slumped at a slower pace. Business optimism was generally down.
According to Statistics Korea, the consumer price index (CPI) was unchanged in July after rising 0.2% in the previous month. Consumer prices have risen at an annualized rate of 0.3%.
On the trade front, exports recorded their slowest decline in four months, but they still saw their fourth consecutive month of declines. In July, overseas sales dropped 7% from the same time a year ago, down from the 10.9% slide in June. Imports tumbled 11.9% last month, falling short of market forecasts of 11.5%. Computers, chips, and semiconductor shipments led the way. Plus, South Korea saw an increase in exports to the US (7.7%) and China (2.5%).
With South Korea officially in a recession, there will be a greater focus on trade data since it will need to depend on a global economic recovery to dig its way out of an economic downturn. In the second quarter, the gross domestic product (GDP) plunged 3.3% from the previous quarter, forcing Seoul into its first technical recession since 2003. This was also the steepest contraction since 1998.
Later this week, foreign exchange reserves and current account data will be released.
In the bond market, the benchmark 10-year government bond rose to 1.306%, and the two-year yield was unchanged at 0.71%. Because of its higher yield, foreign investment has ballooned this year to an all-time high of $115 billion in April.
The USD/KRW currency pair advanced 0.25% to 1,195.44, from an opening of 1,192.72, at 14:48 GMT on Tuesday. The EUR/KRW edged up 0.21% to 1,405.91, from an opening of 1,403.04.
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