South Korean won bundles
South Korean won bundlesReuters

The Korean won has traded near a seven-week high as industrial and manufacturing production numbers for July surprised on the higher side, reducing the likelihood of further rate cuts by the Bank of Korea.

At the same time, a slightly weaker show in the retail sales data capped the gains in the won.

Industrial output grew 3.4% year-on-year in July, faster than the June growth of 0.6% and compared to the market consensus of 2.7%.

Month-over-month, it rose 1.1%, slower than the previous month's 2.6% growth but much better than the street expectation of 0.3%.

Manufacturing production growth was 3.5% from a year earlier in July, sharply above the 0.4% of June and the market forecast of 1.08%.

At the same time, retail sales growth slowed to 0.6% from 1.2% when analysts were looking for 0.8% growth.

The USD/KRW slipped to 1013.46 from the previous close of 1015.10 and after rising to as high as 1016.80 prior to the data. The pair had fallen to a seven-week low of 1012.70 on Thursday, which is very close now.

The pair had risen to a near four-month high of 1041.10 earlier in the month before reversing the trend, and as on Friday, the won has strengthened 1.4% in the month.

The market is now waiting for the August trade data and the HSBC PMI, both due on 1 September and then inflation data for August, scheduled for the next day.

Inflation had fallen to 1.6% in July from 1.7% in the previous month, forcing the central bank to cut the benchmark interest rate at the 14 August policy review. The main lending rate was cut 25 basis points to 2.25%.

In the policy statement, the Bank of Korea had also noted that the improvement in domestic consumption was not sufficient and that the consumption and investment sentiments continued to be sluggish.

The market consensus for the August inflation rate is 1.6%.