Peso breaches P50-per-dollar, a 10-year low
THE PESO plunged to its weakest in over 10 years on Thursday to breach P50-to-the-dollar territory as investors’ pricing in a 100% chance for a December hike by the US Federal Reserve allowed the greenback to rally across the board.
Thursday’s intraday session saw the local currency hitting flat P50 per dollar, before paring some of the losses to end firmer at P49.98. The last time the peso touched P50- to- the- dollar was on Oct. 23, 2006 when it closed at P50.055.
Trading was cautious with volume below the daily average at $437.6 million from $360.5 million the previous session, data from the Philippine Dealing & Exchange Corp. showed.
“Still, we continue to see dollar strength as the market is now pricing in almost 100% probability that the Fed rate hike will happen in December to which consequently, we’ve seen a fresh high for the dollar ( against the peso),” a trader said in a phone interview yesterday.
Citing CME FedWatch’s data, Reuters reported that the odds of the Fed raising rates come Dec. 13 to 14 now stand at 100% following release of the Fed minutes Wednesday night.
“...[A]nd some investors expect more hikes next year if economic momentum is sustained,” Reuters added.
The Fed’s policy- making body Federal Open Market Committee ( FOMC) minutes revealed that, during its Nov. 1 to 2 meeting, policymakers were very hawkish about raising interest rates soon.
Fed Chair Janet L. Yellen earlier said that Donald Trump’s surprise victory in the Nov. 8 presidential elections has nothing to do with the Fed’s plan of raising interest rates “relatively soon.”
But some Fed officials have warned that the US central bank could increase rates “more quickly if the federal budget deficit widens under Trump.”
“The peso was weaker throughout most of the day, as an unexpected rise in US existing home sales pointed to a strengthening US economy that could prompt another US rate hike next month,” a trader said.
While another trader said, “the peso depreciated today, as upbeat US reports on manufacturing and durable goods orders reinforced the hawkish tone of the recent US policy meeting minutes,” adding that “these developments increased the likelihood of a US rate hike next month.”
ING Bank Senior Economist Joey Cuyegkeng said in an e-mail sent to reporters just before the local currency spot market closed that the peso’s decline against the dollar was aligned with “weakness of other Asian currencies.”
“External pressures have become more dominant again,” Mr. Cuyegkeng said, adding sentiment was also hurt by “US trade and jobs policies and fiscal spending next year,” Brexit negotiations, Chinese economic concerns and European Union’s stability.
“The underlying political concerns remain as market participants are also cautious despite the relatively favorable economic fundamentals... In an environment of uncertainties, market participants have been slowly increasing USD portion of holdings for future FX payments and servicing and for alternative investments,” he further said.
Meanwhile, in a statement e- mailed to reporters prior to the foreign exchange market’s close yesterday, Finance Secretary Carlos G. Dominguez III said, “We are watching the currency movements very closely. We seem to be moving in the same direction as the other currencies. We just want to avoid abrupt changes in the exchange rates.”
Similarly, one trader mentioned that the Bangko Sentral ng Pilipinas was suspected to have intervened when the peso hit P50 per dollar.
Finance Undersecretary and the Department of Finance’s Chief Economist Gil S. Beltran said in a statement that the peso’s decline against the dollar was “expected as an impact of the Fed normalization. The peso is just normalizing. It was P57 per the US dollar in 2004. All other currencies are moving in the same direction.”
For today, one trader sees the peso moving within P49.80 to P50.10 against the greenback while the other trader expects the pair trading between P49.85 and P50.05.
“The peso might move sideways due to lack of fresh leads, but may remain generally weak still because of heightened rate hike expectations,” one trader noted. --