KRW Has Experienced Some Dramatic Ups and Downs

After slumping for the first 11 months in 2019, the Korean Won(KRW) turned from the worst performer among Asian currencies to the best one in December, increasing 1.7% since then.

The shift can be largely attributed to the conclusion of phase-one trade deal between US and China, the two largest trade partners of South Korea; another reason is improving domestic economic data that suggests South Koreans economy is recovering after several interest rate cuts.

The improving economic outlook has propped up KRW. Recent figures showed consumer confidence in South Korea last November to be at a 7-months high, while slowing trends in both imports and exports had weaken and one manufacturing index had been rising for 2 months in a row. Economists also estimate that industrial production and inflation data to be released this week will reflect a similar momentum.

The Bank of Korea said last Friday that “an easing approach” will be adapted in interest rate management, as the countrys economic growth still faces uncertainties. In order to boost growth, the central bank cut benchmark interest rate by 0.25% in last July and October respectively.

As the world‘s 4th largest oil importer, South Korea relies completely on imports for oil supply. Rising crude oil price results in a deficit in South Korea’s current account, leading to outflow of foreign exchange and depreciation of the KRW, and the oil‘s fluctuation will also cause up-and-downs in KRW’s rate. Given all these factors, 2020 will be a rather challenging and dramatic year for KRW.