Peso sinks on safe haven mind-set after Fed review

THE PESO continued its slide against the dollar yesterday, closing at its weakest level in two weeks as profit taking dragged on the local unit and as market players chose to flee riskier markets due to the growing uncertainty on the pace of recovery in the world’s largest economy.

The local unit lost 20 centavos against the greenback yesterday, closing at P44.52 per dollar from its Wednesday finish of P44.32 versus the foreign currency.

Yesterday’s closing rate was the peso’s weakest since it finished at P44.54 versus the greenback last April 15.

The peso opened significantly weaker at P44.44 per dollar, which was also its best intraday level. It failed to pare its losses as it closed yesterday’s session near its weakest level of P44.60 to the dollar.

Trading volume, however, ballooned to $955.8 million yesterday from the previous session’s $314.35 million.

A trader interviewed by phone said the peso’s decline was still due to profit taking ahead of the shortened week. Philippine financial markets are closed today for the Labor Day holiday.

“The squeeze continued. USD-PHP squeezed up to P44.60 before some intervention and profit taking that led to the close of P44.52,” the trader said.

“There’s a clear demand for the dollar despite FOMC’s (Federal Open Market Committee) seemingly dovish tone. I say dovish because they didn’t provide a timeline for rate hikes, safe to say that investors really just took profit on Philippine investments evidenced by weak PSEi ( Philippine Stock Exchange index) ahead of the long weekend,” the trader added.

MetisEtrade, Inc. analyst Cherica Y. Vicente, for her part, said in an e-mail yesterday that although US gross domestic product data fell short of expectations and disappointed investors, “the US dollar closed stronger against the Philippine peso as the uncertainty regarding the pace of the US economic recovery influenced stakeholders to stay away

from investing in the riskier assets of emerging markets.”

The US Commerce Department said Wednesday that the US economy grew at an annualized rate of 0.2% in the first quarter, far short of the 1.0% projected by analysts. The result is the latest indicating weakness in the world’s number one economy.

The Federal Reserve on Wednesday said it expects the US economy to grow at a “moderate pace” despite the weak first quarter, keeping its options open for the timing of its first interest rate hike since 2006.

“Although growth in output and employment slowed during the first quarter, the committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the committee judges consistent with its dual mandate,” Fed officials said in a statement following its two-day policy meeting.

While growth had “slowed” in the first quarter, it was due in part to “transitory factors,” officials said.

June has long been seen as the earliest the Fed could tighten policy, after more than six years of near-zero rates. —