Reuters: Most emerging Asian currencies weakened on Thursday, with the South Korean won sliding to a more than two-year low as concerns about an escalation in trade tensions ahead of crucial US-China talks hit exporter currencies.

Markets nervously await the start of two-day trade talks between US and Chinese officials in Washington, due later in the day. Chinese Vice Premier Liu He is seeking to salvage a deal to avert a sharp rise in tariffs, after US officials said Beijing had backtracked on earlier commitments.

US President Donald Trump accused China of breaking the deal it had reached in trade talks, while Beijing announced it would retaliate if tariffs rise as planned on Friday.

“If talks break down and most exports from China to the US face 25% tariff from this Friday onward, risks of a financial market collapse, extreme risk aversion, and sharp slowdown in global growth will spike,” DBS Bank said in a note.

“Even if last moment developments lead to a postponement of escalation, the ill-will generated by this week’s developments will not go away.”

China’s yuan traded 0.4% lower against the dollar, its weakest level in four months.

The Philippine peso edged lower, after data showed that the Philippines economy grew at its weakest pace in four years in the first quarter, reinforcing views the central bank could lower key interest rates when it meets later in the day.

The Indonesian rupiah depreciated 0.4% to the dollar, touching its lowest point since Jan. 4, while the Indian rupee eased 0.2%.

Meanwhile, the Thai baht, emerging Asia’s top performing currency this year, swung between positive and negative territory.

Long-delayed results of Thailand’s first election since a 2014 military coup released on Wednesday produced no clear winner, but gave the pro-army party, which is seeking to keep the current junta leader in power, a clear advantage.

S. Korean won hits more than 2-year low

Leading declines in the region, the South Korean won weakened 0.7% against the dollar, in tandem with a slump in the local equity benchmark index.

“Korea is strongly linked to China because of cross border trade, and the won is also a great indicator of trade in emerging Asia at large,” Mahesh Sethuraman, Deputy Head of Sales Trading, Asia Pacific at Saxo Capital Markets said.

“So, if the US-China trade deal breaks down, it is very likely to have an adverse impact on emerging Asia trade at large, and therefore shorting Korean won is a good proxy for expressing that view.”

The won is emerging Asia’s worst performing currency this year, declining about 5.2%, after South Korea’s economy suffered its worst quarter since the global financial crisis in the January-March period.

World shares sink as US-China trade talks go to the wire