Peso sinks to 10-year low on hawkish Yellen remarks

THE PESO plunged to its weakest level in more than a decade yesterday after US Federal Reserve Chair Janet L. Yellen’s hawkish remarks affirming her views on the central bank’s plans of hiking interest rates further this year.

The local currency closed at P50.50 against the greenback on Wednesday, plunging by 21 centavos from its P50.29-per-dollar finish on Tuesday.

Yesterday’s close was the peso’s lowest finish in over 10 years or since it ended at P50.54 on Sept. 11, 2006.

The peso opened the session at its intraday peak of P50.32 against the dollar, while its worst showing for the day was at P50.505 against the foreign currency.

Dollars traded totalled $1.279 billion on Wednesday, soaring from the $ 452.65 million that changed hands the previous session.

One trader attributed the weakening of the local currency against the greenback to hawkish remarks from Ms. Yellen.

“The peso depreciated today after Fed Chair Yellen affirmed the US central bank’s plan to hike interest rates gradually, despite declining inflation expectations,” the trader said by e- mail on Wednesday.

Ms. Yellen on Tuesday reaffirmed her stance that the Fed would continue to hike rates gradually “to levels that are likely to remain quite low.”

After a series of Fed officials gave similarly hawkish comments last week, global investors are now pricing in around a 50% chance that the US regulator will tighten rates anew before 2017 ends.

The US central bank decided to hike interest rates by a quarter of a percentage point to within 1% to 1.25% during its two- day Federal Open Market Committee meeting in June. This is the second time the regulator increased rates this year since its March policy meeting.

Another trader said the dollar continued to trade higher against the peso due to a technical correction.

To recall, the peso closed at a fresh three-week high on June 16 at P49.90 to the dollar.

“The reason could be the Fed, but it’s more of the continuation of the dollar to move higher after the peso went down two weeks ago,” the trader said.

“We just saw a little bit of consolidation last Friday and the BSP (Bangko Sentral ng Pilipinas) is just there to temper or provide liquidity, that’s why we see the exchange rate at P50.50 now,” the trader said.

The trader pointed out that the local currency will see fresh lows before the year ends. “It looks as though that’s the direction.”

According to the trader, the country’s economic fundamentals remain intact despite a weaker peso, but noted that “flow-wise, the peso is really weak versus the dollar,” citing the country’s balance of payments (BoP) and current account deficit position.

For 2017, the central bank expects current account to post a $600-million deficit from 2016’s $600-million surplus, compared to its previously estimated $800million surplus by yearend as it projected imports to grow at 10%, outpacing the 5% expansion in exports.

The BSP trimmed also sees the country’s BoP position at a $ 500- million deficit, reversing a $ 1- billion surplus projected last December and wider than the $420-million deficit booked last year, on the back of offshore uncertainties and amid faster but uneven global growth that could weigh down local prospects.

EXTERNAL FACTORS

For his part, BSP Deputy Governor Diwa C. Guinigundo told reporters in a text message the local currency plunged against the dollar yesterday primarily on offshore factors.

“Mostly externally driven. US Congress is not expected to expedite [ US President Donald J.] Trump’s tax measures and fiscal spending. Negative to market sentiment,” Mr. Guinigundo said.

“The IMF (International Monetary Fund) was reported to have a more pessimistic view of the US economy which could affect the outlook for emerging markets including the Philippines. Hence, regional currencies depreciated across the board,” the BSP official added.

“Finally, it’s quarter and semester end and banks are servicing FX ( foreign exchange) requirements of their corporate clients. Heavier than usual.”

For today, one trader said the exchange rate may settle within the P50.45 to P50.70 range, while the other trader said the peso may play within P50.40 to P50.60 to the dollar.

“The peso might remain weak due to likely stronger US data on pending home sales. Exchange rate movements may be minimal, as some investors might remain on the sidelines ahead of the US GDP ( gross domestic product) growth report,” one trader noted.