USD/KRW: Won pulls back from 1-week low on stronger GDP growth

Key points

South Korean Won extended gains against the US Dollar on Tuesday, after preliminary data showed South Korean economy grew at a faster rate than anticipated in the second quarter despite weaker consumer and business spending.

South Korean GDP expanded 0.6% quarter-on-quarter in Q2 of 2023, speeding up from a 0.3% growth in Q1 and outpacing market consensus of a 0.5% expansion.

The nation’s exports shrank 1.8% quarter-on-quarter mostly due to lower exports of petroleum products and transportation services, while total imports fell 4.2%, reflecting lower imports of crude oil and natural gas.

Still, private consumption dropped 0.1% quarter-on-quarter, while government consumption shrank 1.9%.

Construction investment decreased 0.3% in the latest quarter dragged down by civil engineering, while facilities investment shrank 0.2%.

Weaker spending bolstered the case for the central bank to ease its restrictive monetary policy.

The yield on South Korean 3-year Treasuries surged to 3.650%, while that on the benchmark 10-year bonds went up to 3.692%.

Won gains are likely to remain subdued ahead of the outcome of the Federal Reserve’s two-day policy meeting. The Fed is largely expected to hike interest rates by 25 basis points, while market players will also be looking for clues the central bank may provide in regard to its September meeting.

As of 9:21 GMT on Tuesday USD/KRW was edging down 0.32% to trade at 1275.20. Last Friday, the exotic Forex pair went up as high as 1290.03. The latter has been the pair’s strongest level since July 12th (1295.72).