USD/KRW remains subdued near 1,391 following US-Korea trade agreement
- USD/KRW holds losses after Seoul and Washington finalized a trade deal.
- The US-Korea deal includes a 15% US tariff on imports from South Korea.
- Traders await US Personal Consumption Expenditures (PCE) - Price Index data, due on Thursday.
USD/KRW depreciates after registering gains in the previous session, trading around 1,391 during the Asian hours on Thursday. The pair inches lower as the South Korean Won (KRW) receives support after Seoul and Washington finalized a trade agreement.
US President Donald Trump announced a new trade deal with South Korea, imposing a 15% US tariff on imports from South Korea. The agreement also includes a $350 billion commitment from South Korea toward US-owned and controlled investments. However, South Korean President Lee Jae Myung said the funds are aimed at supporting Korean firms expanding into the US markets.
The ruling Democratic Party welcomed the agreement, highlighting reduced tariff pressure, while the opposition People Power Party voiced concerns over the potential economic burden stemming from the deal. Meanwhile, South Korean business groups expressed support for the trade deal with the US, noting that it would help ease uncertainty surrounding Korean exports.
However, the USD/KRW pair gained support as the US Dollar (USD) advanced after the Federal Reserve (Fed) decided to hold its benchmark federal funds rate in a range of 4.25%-4.5% at its July meeting on Wednesday, as widely expected.
Traders shift their focus toward the US Personal Consumption Expenditures (PCE) - Price Index, due on Thursday, which is expected to accelerate slightly. On Friday, Nonfarm Payrolls (NFP) is expected to hold in positive territory, which could add further fuel to rate hold fears.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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