Korean won dips further amid looming currency war
The South Korean won continued to sink to new lows against the US dollar Tuesday amid escalating trade tensions between the world's two largest economies that now appear to be set to include a currency war, according to Yonhap news agency reported.
After opening at 1,220.00 won, the local currency was changing hands at 1,217.45 won with the US dollar as of 9:37 a.m., down 2.15 won from the previous session's close.
On Monday, the won closed at 1,215.30 to the dollar, the lowest in over three years.
The won's continued decline came after Beijing let its yuan slip through its long-guarded line of 7 per dollar for the first time in 11 years, in an apparent response to Washington's escalation of their trade dispute with additional tariffs.
The United States is set to begin imposing 10 percent tariffs on $300 billion worth of Chinese imports, in addition to the 25 percent tariffs on $250 billion worth of Chinese goods it has levied since early June.
Washington further escalated its ongoing tension with Beijing on Monday (Washington time), labeling China as a currency manipulator.
A weaker yuan could easily translate into increased exports and profits for the world's second-largest economy, but the opposite for other countries, possibly forcing them to weaken their own currencies in an attempt to defend their own economies.
South Korea has already seen its exports steadily drop for eight consecutive months since December, while its own trade conflict with Japan is expected to add more downward pressure on its outbound shipments down the road.
"The trade tensions between the US and China are entering the phase of a currency war with the yuan breaching the 7 per dollar level and the US designating China as a currency manipulator," Jeon Seung-ji, an analyst at Samsung Futures, said.
"The won-dollar rate is expected to test the 1,220 won level as the conflict between the two countries will likely prompt market fears for some time, forcing investors to avoid risk assets," Jeon added.
The Bank of Korea said it has called for an emergency meeting of its top officials, including Gov. Lee Ju-yeol, to discuss possible fallout from the latest developments.