The South Korean won (KRW) appreciated by 0.3% against the US dollar (USD) on Tuesday, May 23, 2023, as the latest consumer confidence data for May showed a rebound from the previous month. The Bank of Korea (BOK) reported that the Composite Consumer Sentiment Index (CCSI) rose by 3.1 points to 95.1 in May, the highest level since June 2022. The CCSI measures the level of optimism that consumers have about the performance of the economy and their personal finances.
What Factors Boosted Consumer Confidence in South Korea?
According to the BOK, the main factors that boosted consumer confidence in May were easing inflation expectations, improving living standards, and positive outlooks on domestic economic conditions. Consumer sentiment regarding current living standards rose to 87 (vs 83 in March) and those concerning future living standards increased to 90 (vs 87 in March). Consumer sentiment related to future household income was unchanged at 96, and that concerning future household spending remained at 110.
Consumer morale concerning current domestic economic conditions also increased to 58 (vs 52 in March), and those concerning future domestic economic conditions went up to 68 (vs 63 in March). The BOK attributed the improvement in consumer sentiment to the government’s stimulus measures, the gradual easing of social distancing restrictions, and the progress of vaccination campaigns.
How Did the BOK React to the Consumer Confidence Data?
The BOK welcomed the consumer confidence data as a sign of recovery in domestic demand, which has been sluggish due to the COVID-19 pandemic. The BOK also noted that consumer spending increased by 0.3% quarter-on-quarter in the first quarter of 2023, after contracting by 0.1% in the previous quarter.
However, the BOK also cautioned that there are still uncertainties and risks surrounding the economic outlook, such as the possibility of a resurgence of COVID-19 cases, geopolitical tensions, and global inflationary pressures. The BOK said that it will closely monitor the economic situation and maintain an accommodative monetary policy stance to support the recovery.
What Is the Outlook for the South Korean Won?
The South Korean won has been appreciating against the US dollar since the beginning of 2023, as the South Korean economy has shown resilience and strength amid the global pandemic. The won has gained about 4% against the dollar so far this year, making it one of the best-performing Asian currencies.
The outlook for the won remains positive, as analysts expect that South Korea will continue to benefit from its strong exports of semiconductors, automobiles, and other high-tech products. South Korea is also expected to achieve herd immunity by September 2023, which will boost consumer confidence and spending further.
However, some challenges remain for the won, such as the possibility of a faster-than-expected tightening of US monetary policy, which could strengthen the dollar and weaken emerging market currencies. Another risk is that rising inflation could force the BOK to raise interest rates sooner than expected, which could dampen economic growth and consumer sentiment.
The BOK is expected to keep its policy rate unchanged at 0.5% at its next meeting on Thursday, May 25, 2023, but some analysts expect that it could start signaling a rate hike later this year or early next year.
Summary
The South Korean won rose by 0.3% against the US dollar on Tuesday, May 23, 2023, as the latest consumer confidence data for May showed a rebound from the previous month. The CCSI rose by 3.1 points to 95.1 in May, the highest level since June 2022. The main factors that boosted consumer confidence were easing inflation expectations, improving living standards, and positive outlooks on domestic economic conditions. The BOK welcomed the consumer confidence data as a sign of recovery in domestic demand, but also cautioned that there are still uncertainties and risks surrounding the economic outlook. The outlook for the won remains positive, as analysts expect that South Korea will continue to benefit from its strong exports and vaccination progress. However, some challenges remain for the won, such as the possibility of a faster-than-expected tightening of US monetary policy or rising inflation.
