Peso weakens to hit P53:$1 level
THE PESO plunged on Wednesday, sinking below the P53-perdollar line to log a new 12-year low ahead of the policy meeting of the US Federal Reserve.
The local currency closed Wednesday’s session at P53.23 against the dollar, 28 centavos weaker than the P52.95- per-greenback finish on Monday.
This is a new low for the peso in nearly 12 years or since it closed at P53.55 against the greenback on June 29, 2006.
The peso traded weaker the whole day, opening the session at P53 versus the greenback, which was already its best showing for the day. Meanwhile, its intraday low stood at P52.26 against the US currency.
Dollars traded rose to $773.17 million on Wednesday from the $ 653.1 million that switched hands last Monday.
Traders interviewed yesterday said the peso weakened as the dollar strengthened overnight ahead of the Fed policy meeting.
“The dollar- peso close at a new 12-year high of P53.23... partly due to the widely expected + 0.25 Fed rate hike that led to stronger US dollar versus most [ Southeast Asian] currencies,” Michael L. Ricafort, Rizal Commercial Banking Corp. Economics and Industry Research Divison head, said in a text message on Wednesday.
Markets are expecting the Fed to raise its benchmark rates by a quarter of a percentage point at its meeting this week amid low unemployment and higher wages.
This follows a similar rate hike in March. Currently, the federal funds rate stands at a 1.5%-1.75% range.
“[ The weaker peso was due] to the stronger dollar as markets are waiting for the Fed to hike its rates this month again,” a trader said in a phone interview.
“If the Fed is expected to hike and the other major central banks like the Bank of Japan and probably the European Central Bank will not hike, you see higher interest in the rates in the US, affecting the dollar.”
The trader added that the Bangko Sentral ng Pilipinas (BSP) was not seen intervening in the peso-dollar trade during the trading session, causing the local currency plunge.
As the country’s monetary authority, the BSP sometimes conducts “tactical interventions” to temper any sharp swings that may cause the peso to appreciate or depreciate.
The wider trade deficit as well as the lower foreign exchange reserves, according to the trader, also affected the peso’s strength.
On Thursday, the trader expects the peso to move between P53.10 and P53.35 versus the dollar, while another trader sees the local unit trading within the P53-P53.30 range.
“There might be some profittaking due to the local shortened trading week ahead of possible hawkish cues from the policy meeting of the European Central Bank on Friday,” the second trader noted.