Won at 17-month low vs dollar on reduced US rate cut bets

The Korean won weakened to its lowest level in 17 months against the dollar on Thursday, after stronger-than-expected US inflation data dented hopes that the Federal Reserve might end its tightening cycle anytime soon.

The won ended local trade at 1,364.1 per dollar, a 0.7% retreat from Tuesday’s finish. That marked its weakest closing level since Nov. 10, 2022, when it finished at 1,377.5.

South Korea’s financial markets, including the foreign exchange market, were closed on Wednesday for parliamentary elections, in which the opposition Democratic Party scored a landslide victory against the ruling People Power Party.

The Korean currency opened at 1,365.0 to the greenback and hovered between 1,361.8 and 1,365.0 during the session. The intra-day level was also its weakest point in 17 months since touching 1,378.5 on Nov. 10, 2022.

The US consumer price index (CPI), a measure of inflation, added 3.5% in March from the same month last year, according to data released by the Bureau of Labor Statistics. The figure compared with February’s gain of 3.2% and marked the highest annual increase in six months.

The CPI advance beat the Fed’s 2% target and signaled the Fed will likely maintain its high rates longer than expected.

Following a string of rate hikes since March 2022, US interest rates have remained in the 5.25%-5.55% range since July 2023, their highest level in over two decades.

In South Korea, hopes for rate cuts are waning as well. The country’s headline inflation stayed above 3% in March for the second consecutive month, reinforcing market expectations that the Bank of Korea would maintain its tightening cycle for a while.

Meanwhile, the Korean currency steadied at 8.91 per Japanese yen on Thursday afternoon, compared to 8.92 on Tuesday.

Write to Jin-Gyu Kang at josep@hankyung.com

Yeonhee Kim edited this article.