South Korean won drops to 80-day low as inflation slows to lowest in 4 months

The won has fallen more than 0.5% on Wednesday, adding to the 3.6% decline in May.

The South Korean won has weakened to an 80-day low on Wednesday (1 June) after data showed consumer price inflation slowed to its lowest rate in four months in May.

USD/KRW jumped to 1196.35, its highest since 11 March, and up from Tuesday's close of 1189.55. The move on Wednesday translated to a 0.56% decline in the won, which has fallen 3.6% in May.

The South Korean currency had hit a more than 5-year low of 1244/USD in January from which it made an 8.6% rally in February. The February gains are now being reversed and a retest of the January low is not unlikely in the coming weeks as it is only less than 50 wons away.

Both headline and core measures of the consumer price inflation have eased in May as per data on Wednesday. The headline index increased 0.8% year-on-year, its lowest since January and compared to the 1.0% rise in April.

Details showed that prices of food rose at a slower pace while cost of housing and utilities edged up. On a monthly basis, prices were flat.

However, Markit Economics said inflationary pressures remained sharp in South Korea's manufacturing sector even though operating conditions improved slightly in May.

The headline PMI rose to 50.1 from 50.0 in April, data showed on Wednesday. The latest figure was the highest since December last year, but below the long-run series average, market said.

"Inflationary pressures remained sharp, with greater raw material costs (partly stemming from shortages) helping to push up input prices. Charges, on the other hand, decreased due to increased competition and pressure from clients," said Amy Brownbill, an economist at Markit.