Weaker dollar to further slow economy

The dollar is expected to keep losing ground this year amid a weak outlook for both the global and the world’s largest economies, analysts said Tuesday.

This will further put the export-driven Korean economy on the spot given that a stronger won will lower the price competitiveness of its products.

The key global currency’s shift toward further weakness began after former Federal Reserve Chair Janet Yellen said the central bank’s December hike could be its last should the U.S. economy face a slowdown.

The analysts noted that the decline did not start with the partial government shutdown following the political deadlock over budget negotiations for President Donald Trump’s border wall.

“The dollar’s turning point, I believe, began when Yellen made a comment about U.S. monetary policy last Monday,” said Kim Doo-un, an economist at KB Securities.

A weaker dollar on a slow econo- my would lead to a stronger won.

The analyst added there is a consensus that the partial U.S. government shutdown will not affect the real economy.

Yellen said at a Jan. 14 event for U.S. retailers that should a global downturn spill over to the U.S. economy, the Fed would have to “pause” future rate increases.

The central bank initially hinted at increasing its rate twice in 2019, becoming dovish as it was expected to hike the rate every fiscal quarter.

“It’s very possible we may have seen the last interest rate hike of this cycle,” said Yellen at the event in New York.

This comes after another meeting two weeks ago when former Fed chiefs, including Yellen and Ben Bernanke met with Fed Chairman Jerome Powell, who said in a panel discussion that the central bank will be “patient” and see how the economy develops.

Also, he added the Fed will “adjust its policy quickly and flexibly” to support the economy, while closely listening to concerns over a possible market downturn.

A stronger won moving inversely to a weaker dollar would make Korean products shipped abroad more expensive.

On the other hand, a stronger won will lower the price of oil imports.

A weak dollar usually leads to an increase in global oil prices as they too have an inverse relationship.

But the benchmark Brent crude fell below $60 per barrel recently on concerns over weak demand from China, the world’s second-largest fuel consumer, which is facing a slowdown.

Analysts say the positive momentum for trade relations between the U.S. and China is drawing investors to riskier assets. The U.S. dollar is considered a safe-haven asset.