BNY MellonKRW: Balancing Growth & InflationSouth Korea’s economic recovery so far this year has been mixed. While better-than-consensus GDP in Q2, 0.7% q/q and 2.9% y/y, showed signs of improvement, data from other segments has been less encouraging. For example, the July PMI manufacturing index, at 49.8, unexpectedly fell into contraction zone for the first time since September 2020, and manufacturers’ August Business Survey fell to 83 (March high: 93).Exports growth has fallen markedly from the 45.5% y/y highs in 2021 and 21.1% y/y in February this year. While July exports grew at a respectable 9.2% y/y, semiconductor exports plunged to just 2.1% y/y. Perhaps even more concerning was exports to China, Korea’s largest trading partner, dropping 2.7% y/y.Consumer confidence dropped to 88.8 in August. The sub-index of future economic conditions painted a dire outlook: at 58, below the 59 in April 2020 and back to 2008 levels. Overall, weakening confidence along with ongoing inflation suggest the possibility of a limited consumption recovery and, hence, does not bode well for growth.As for inflation, the risk of de-anchoring remains a top concern for the Bank of Korea (BoK). CPI in July reached 6.3% y/y, the highest since November 1998. Inflation expectations per the BoK’s survey hit 4.7%, and all-time high in the series (began in 2002).INGAmid an abundance of rather dismal PMIs in major Western economies, the dollar suffered a correction yesterday as activity surveys showed a big slump in the service sector. The market reaction relates to markets pricing in a grimmer economic outlook in Europe than in the US, so that bad data tends to have an asymmetrically larger impact on US-growth-sensitive assets. In FX, the dollar’s overbought condition makes it naturally vulnerable to some position-squaring downside risks.That said, we are not surprised to see the post-PMI FX moves being quite short-lived (the dollar recovered overnight), as the macro picture and solidly hawkish expectations ahead of Jackson Hole should keep the dollar broadly in demand. The quintessential lack of attractive alternatives – especially in Europe – means that DXY can still reach 110.00 by the end of the week if Fed Chair Jerome Powell sounds convincing enough in sticking to his hawkish message on Friday.On the data side today, some focus will be on durable goods orders for July, which should however have limited market implications. There are no scheduled Fed speakers before the Jackson Hole Symposium kicks off tomorrow.