South Korean won weakens amid mixed data as dollar rally continues, inflation data in focus

Retail sales numbers came better than expected but industrial output was below expectations. CPI data is due on Friday.

Korean won
South Korean won and US dollar notes Reuters

The South Korean won slipped to a 11-day low against the US dollar on Thursday (March 2) amid mixed data points and as the greenback advanced on the back of increasing Fed tightening chances.

USD/KRW rose to 1144.26 from the previous close of 1140.23, meaning a 0.5% decline on the day for the won. So far this week, the South Korean currency has fallen 1.37% against the dollar.

The pair had touched a low of 1124.88 earlier this week, which was a 4-month high for the won.

With the Japanese yen, however, the won strengthened to 9.9926/yen from its previous close of 10.0767, reflecting the broad yen weakness in connection with rising risk appetite in global equities. The Dow Jones industrial average broke the 21,000 mark for the first time in history on Wednesday.

South Korean Data

Economic data releases from South Korea were mixed with retail sales growth coming in better than expected while the industrial output data disappointing.

Industrial production rose 1.7% year on year in January, easing from 4.2% in December while analysts had been expecting at least 2.6% growth. The January number was the weakest since October last year.

On a month-on-month basis, however, industrial production came better than expected with 3.3% growth compared to market consensus of 0.3%.

Retail sales growth rose to a 5-month high of 4% in January on an year-on-year basis, from December's 1.8% and beating market consensus of 1.1%.

Friday's inflation numbers for February are what the market is now waiting for. The consensus is for the year-on-year headline CPI to move off the 4-year high of 2% it touched in January to around 1.3% in the second month of the year.

Dollar Rally

The US dollar continued to strengthen broadly as most Fed speakers in the recent days have sounded hawkish.

Philadelphia Fed President Patrick Harker said on Tuesday that he expects the Fed rate to be raised three times this year as long as the economy continues to strengthen.

The New York Fed President William Dudley said he sees a rate hike in the "relatively near future".

His comments were in line with the words of San Francisco Federal Reserve Bank President John Williams, who suggested that the central bank has to raise interest rates in order to avoid a 'too hot' economy that in the end isn't sustainable.

The USD index futures for June delivery rose to 101.93 on Thursday during early Asian trade from Wednesday's close of 101.78. It was a 0.15% adding to the 0.75% jump on the previous day.