{"id":2207573,"date":"2024-12-20T08:00:15","date_gmt":"2024-12-19T23:00:15","guid":{"rendered":"https:\/\/koreapro.org\/?p=2207573"},"modified":"2024-12-19T11:20:25","modified_gmt":"2024-12-19T02:20:25","slug":"feds-rate-cut-sparks-market-turmoil-as-south-korea-struggles-with-weakening-won","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/12\/feds-rate-cut-sparks-market-turmoil-as-south-korea-struggles-with-weakening-won\/","title":{"rendered":"Fed\u2019s rate cut sparks market turmoil as South Korea struggles with weakening won"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The U.S. Federal Reserve <\/span><a href=\"https:\/\/www.federalreserve.gov\/newsevents\/pressreleases\/monetary20241218a.htm\"><span style=\"font-weight: 400;\">cut its benchmark interest rate<\/span><\/a><span style=\"font-weight: 400;\"> by 0.25 percentage points early Thursday morning, lowering the target range to 4.25% to 4.5%, marking its third consecutive rate reduction this year. While the cut met market expectations, Fed chairman Jerome Powell signaled a slower pace of future rate cuts, citing lingering inflationary pressures and strong economic data. Global markets reacted sharply, with U.S. Treasury yields rising and the dollar gaining strength.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">South Korea\u2019s finance ministry <\/span><a href=\"https:\/\/www.moef.go.kr\/nw\/nes\/detailNesDtaView.do?searchBbsId1=MOSFBBS_000000000028&amp;searchNttId1=MOSF_000000000071855&amp;menuNo=4010100\"><span style=\"font-weight: 400;\">responded<\/span><\/a><span style=\"font-weight: 400;\"> with assurances of 24-hour market monitoring and swift stabilization measures if volatility escalates. Finance minister Choi Sang-mok emphasized bold intervention if needed and announced plans to strengthen foreign exchange market liquidity and improve trading infrastructure in 2025. This aligns with Choi\u2019s previous remarks since President Yoon Suk-yeol\u2019s martial law declaration that the government will provide <\/span><a href=\"https:\/\/koreapro.org\/2024\/12\/south-koreas-finance-ministry-pledges-liquidity-measures-to-calm-market-fears\/\"><span style=\"font-weight: 400;\">\u201cunlimited\u201d liquidity injections<\/span><\/a><span style=\"font-weight: 400;\"> to stabilize markets.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Korean won <\/span><a href=\"https:\/\/www.yna.co.kr\/view\/AKR20241219041051002?section=economy\/all&amp;site=topnews01\"><span style=\"font-weight: 400;\">plummeted<\/span><\/a><span style=\"font-weight: 400;\"> to its lowest level in almost 16 years, breaching 1,450 per dollar during trading for the first time since 2009. The currency\u2019s rapid depreciation, coupled with foreign investor outflows, added pressure on local financial markets. The KOSPI index fell 2.33% at opening, with institutional and foreign investors net sellers.<\/span><\/p>\n<p><b>WHY IT MATTERS<\/b><\/p>\n<p><span style=\"font-weight: 400;\">In the short term, the Fed\u2019s hawkish tone has amplified global dollar strength, which will likely push up South Korea\u2019s import costs, including energy and raw materials. This will likely exacerbate inflationary pressures while increasing the risk of capital outflows from domestic markets, prompting higher volatility in equities and foreign exchange markets.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Over the medium term, the Bank of Korea will likely face difficult decisions. Raising rates to defend the won could dampen domestic consumption and strain heavily indebted households. Household borrowing <\/span><a href=\"https:\/\/koreapro.org\/2024\/10\/rising-loan-delinquency-increases-financial-uncertainty-for-south-korean-banks\/\"><span style=\"font-weight: 400;\">surged<\/span><\/a><span style=\"font-weight: 400;\"> during the summer, which may limit the central bank\u2019s flexibility. On the other hand, maintaining lower rates risks further currency weakness. While a weaker won will likely make South Korea\u2019s exports more competitive in the short term, global demand uncertainty will likely limit upside potential.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In the long term, a persistently strong dollar and changes in leadership in Washington and Seoul may accelerate South Korea\u2019s trade diversification efforts and investments in renewable energy and high-tech sectors. However, fiscal constraints, as evidenced by South Korea\u2019s <\/span><a href=\"https:\/\/koreapro.org\/2024\/12\/han-duck-soo-pushes-for-swift-2025-budget-execution-amid-fiscal-uncertainty\/\"><span style=\"font-weight: 400;\">reduced 2025 budget<\/span><\/a><span style=\"font-weight: 400;\">, could make it challenging for Seoul to sustain growth.<\/span><\/p>\n<div class=\"content-tags\"><a href=\"https:\/\/koreapro.org\/tag\/business-economy\/\"><span class=\"tag\">Business &amp; Economy<\/span><\/a><a href=\"https:\/\/koreapro.org\/tag\/domestic-politics\/\"><span class=\"tag\">Domestic Politics<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"<p>The U.S. Federal Reserve cut its benchmark interest rate by 0.25 percentage points early Thursday morning, lowering the target range to 4.25% to 4.5%, marking its third consecutive rate reduction this year. While the cut met market expectations, Fed chairman Jerome Powell signaled a slower pace of future rate cuts, citing lingering inflationary pressures and [&hellip;]<\/p>\n","protected":false},"author":10407,"featured_media":2207574,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30],"tags":[24,27],"class_list":["post-2207573","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-briefings","tag-business-economy","tag-domestic-politics"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Fed\u2019s rate cut sparks market turmoil as South Korea struggles with weakening won - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2024\/12\/feds-rate-cut-sparks-market-turmoil-as-south-korea-struggles-with-weakening-won\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fed\u2019s rate cut sparks market turmoil as South Korea struggles with weakening won - KOREA PRO\" \/>\n<meta property=\"og:description\" content=\"The U.S. Federal Reserve cut its benchmark interest rate by 0.25 percentage points early Thursday morning, lowering the target range to 4.25% to 4.5%, marking its third consecutive rate reduction this year. 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