By Lee C. Chipongian
The peso vis-à-vis the US dollar weakened this week to a fresh 10-year low of P50.40 to the US dollar at the close of trading yesterday.
It opened at P50.34:$1 from Thursday’s closing of P50.31 as the market continued to move in anticipation of US Federal Reserve’s possible rate increase when it meets on March 15/16.
Presidential spokesman Ernesto Abella said in a text message Friday to Bloomberg News that the moves in the exchange rate have been driven by expectations the US Federal Reserve will raise interest rates. As the peso weakens, other Asian currencies were strengthening, The peso is down 1.3 percent this year, while the Korean won leads the pack of Asian currency gainers, rising 4.5 percent.
It could get worse for the peso before it gets better. Technical indicators suggest its decline will continue after it breached a support level of 50 versus the dollar last month. The peso touched 50.395 on Friday, its weakest since September 2006.
Overseas funds have sold net $122.1 million of Philippine equities this year, wiping out the $83.4 million inflow seen through 2016, exchange data compiled by Bloomberg show.
“You have a whole bunch of political developments recently that when you put it all together, people outside will probably say ‘wait, let’s be cautious here’,” said Joey Cuyegkeng, a Manila-based senior economist at ING Groep NV. “I expect some recovery in sentiment once all these political concerns are addressed, but it will take a while.”
First Metro Investments Corp. in a commentary is expecting the peso to test the P51-level and close the year at this range. “Despite a slight improvement in the external sector, we foresee continued depreciation pressure on the peso-US dollar rate in the first quarter but at a milder pace than in the second half of 2016,” it said.
The peso which already lost more than one percent this year, has continued to depreciate and to underperform compared to other regional currencies.
The US dollar continued to trade higher “still on market anticipation of a Fed hike this March. The US dollar however is trading off its highs on profit taking ahead of the weekend,” said bank analysts.
The market as a consensus expects the US Fed to hike rate soon and the eye is on this month’s policy meeting.
Metrobank Research said the exchange rate will continue to move around US officials’ comments on this issue. The week’s attention also focused on President Donald Trump’s first speech to the US Congress.
“All eyes were on President Trump’s address to Congress as he reiterated that his administration would seek pro-growth policies. However, his address was quite vague and did not discuss specific details,” said Metrobank analysts. “His overall speech lacked fresh content and only re-mentioned plans of a ‘historical’ tax cut, deregulation, and a $1 trillion infrastructure plan.”
With external issues at the forefront and domestic budget deficit for the local side, the market had anticipated the peso-US dollar will move within a range of P50.15-P50.45 last Friday.
The central bank has said that it is prepared to smoothen exchange rate “sharp” fluctuations but so far sees “legitimate dollar requirements”.
The exchange rate market broke the P50 barrier on February 20, closing at P50.05 at the end of the trading day.