Peso at two-month low after Dudley comments
THE PESO plunged to its weakest level in more than two months on Tuesday, breaching the P50-tothe dollar level anew, driven by hawkish remarks from an official from the US Federal Reserve on faster inflation, signalling more interest rate hikes from the regulator.
The local currency ended at P50.10 per dollar yesterday, plunging by 19 centavos from its P49.91 finish on Monday. Yesterday’s close was also the peso’s worst showing in nearly 12 weeks or since it ended at P50.175 versus the greenback on April 6.
The peso was traded weaker the whole session after it opened the day at P49.99 against the dollar, while its best showing for the day was just at P49.97 to the dollar. It closed at its weakest intraday level.
Dollars traded totalled $1.155 billion yesterday, sharply rising from the $572.6 million that changed hands in the previous session.
Traders attributed the peso’s slump versus the dollar to New York Fed President William Dudley’s hawkish comment on a tightening labor market expected to boost US inflation, which could mean the US central bank may tighten policy settings further.
“The peso depreciated today primarily because of Fed’s Dudley’s upbeat assessment of the US economy, which supported views of more US rate hikes ahead,” one trader said by e-mail on Tuesday.
Similarly, another trader said by phone that the dollar finished higher against a basket of currencies yesterday primarily due to Mr. Dudley’s hawkish remarks.
“We generally saw a stronger dollar across the board last night due to the Fed comment, so which also affected the peso,” the trader said.
In a speech on Monday, Mr. Dudley said the tightening US labor market should boost inflation, which may mean that the Fed still has plans to increase rates by yearend.
Reuters reported that the CME FedWatch bared global investors are pricing in around a 50% chance that the US central bank will tighten rates anew before 2017 ends.
The US central bank decided to hike borrowing costs by a quarter of a percentage point to between 1% to 1.25% during its two- day Federal Open Market Committee (FOMC) meeting last week. This is the second time the regulator increased rates this year since it increased rates during its March policy meeting.
Sought for comment, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. told reporters in an ambush interview before the currency market closed that the peso breached the P50-to-the dollar level as “[i] t’s reacting to external developments particularly the statement of a Fed official overnight. All regional currencies have responded the same way. We’re just moving along with regional currencies right now.”
For Wednesday, one trader sees the exchange rate settling within P50.05 to P50.25 while the other trader said the peso may play within P50 to 50.30 to the dollar.
ASIAN UNITS DOWN
Most Asian currencies slipped on Tuesday, as the dollar saw support after an Mr. Dudley’s remarks supporting expectations for the Fed to keep raising interest rates, with the Indian rupee, Malaysian ringgit and the Chinese yuan edging 0.1% lower.
The Taiwanese dollar fell marginally, remaining on track to reverse yesterday’s gains.
The Indonesian rupiah fell marginally to 13,292 against the dollar.
The South Korean won fell as much as 0.5% to touch an eightweek low on Tuesday, leading the declines among emerging Asian currencies.