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July 03, 2018 04:32 GMT
The weakness in the yuan is acting as....>
KOREAN WON
KOREAN WON: The weakness in the yuan is acting as an additional headwind to the
Korean won, which already faces mounting downside risks from widening interest
rate differentials with the US.
- USDKRW currently trades at 1,122.55, rising 0.3% today in line with yuan
weakness, and the broader trend is for further gains.
- The 2-year swap spread is now 87bps in the US's favour, rising 80bps since the
start of the year. While real yields (based on long-term breakeven inflation
expectations) are still 40bps higher in Korea, the differential continues to
head in the USD's favour.
- With the CDS also rising from its lows in recent weeks amid small signs of
global credit stress, the won's fair value is further being eroded, suggesting
further upside ahead for USDKRW.
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