(2nd LD) S. Korean currency hits 13-year low on recession woes

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SEOUL, July 15 (Yonhap) -- The South Korean currency on Friday sank to its lowest point against the U.S. dollar in more than 13 years on concerns about global monetary tightening and an economic recession.

The local currency closed at 1,326.10 won per dollar, down 14 won from the previous session's close. The won hit as low as 1,326.70 per the dollar at one point.

It marked the lowest closing so far this year and the lowest since April 29, 2009, when the won ended at 1,340.70 against the greenback.

Since the Korean currency fell to the 1,300-level for the first time in nearly 13 years on June 23, the won's weakness has been accelerated amid concerns that the Federal Reserve's aggressive monetary tightening could push the U.S. economy to a recession. The won has slid around 10 percent against the dollar so far this year.

U.S. consumer prices, a key gauge of inflation, soared 9.1 percent on-year in June, the highest in 41 years and accelerating from an 8.6 percent jump in May. The U.S. producer price index also jumped 11.3 percent on-year in June.

Faster-than-expected inflation prompted some market players to raise their bets on the Fed's 1 percentage point rate hike at the July policy meeting.

Due to the Fed's fast rate hike drive, interest rates in the U.S. are expected to soon become higher than those in South Korea, which could precipitate foreign capital outflows from here in pursuit of higher returns.

The Bank of Korea delivered an unprecedented rate hike of 0.5 percentage point to 2.25 percent on Wednesday, marking the sixth rate increase since August last year. The Fed has raised federal funds rates, including a 75 basis point hike in June, to a target range of 1.5-1.75 percent.

Capital outflows are feared to add more downward pressure on the Korean currency. The won's weakness exerts upward pressure on inflation as it boosts import bills.

Policymakers dismissed the possibility of acute capital flight. But foreigners became net sellers of Seoul bonds for the first time 18 months in June.

Experts said the Korean currency could further weaken to the 1,350-level and beyond, as demand for the dollar will likely remain firm for the time being due to risk aversion.

sooyeon@yna.co.kr
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