PESO PLUNGES to 56 against Dollar, LOWEST In 17 YEARS

THE local currency plum-meted to the P56-terri-tory on Thursday's trade, marking its lowest value against the dollar in 17 years.

Data from the Bankers Asso-ciation of the Philippines (BAP) showed that the peso closed at P56.06 to a dollar on Thursday, falling about 39 centavos in val-ue from the previous day's trade close of P55.67 to a dollar.

The total traded volume was, meanwhile, lower on Thursday at $1.11 billion from the $1.25 billion on Wednesday. This is the lowest value of the local currency since Septem-ber 27, 2005 when it closed at P56.295 to a dollar. According to economists, the peso has been beaten by the strong dollar sentiment amid de-velopments in the United States Federal Reserve's monetary pol-icy path.

"Broad US dollar [USD] strength has dominated trading this week as investors seek safe haven on recession fears.

As such, most emerging market [EM] currencies have weakened sharply against the USD. The dollar was also boosted as it looks like the Fed is determined to tighten policy in order to snuff out inflation in the US ,” ING Bank economist Nicholas Mapa said. “The stronger US dollar vs. major global currencies [was seen] recently partly due to in@ c rae io a rd si end arg io lob al risk a version as the markets price in the risk of a possible US economic slowdown or even recession in view of more aggressive effort to bring down inflation towards the long-term target of 2 percent,” Rizal Commercial Banking Corporation (RCBC) economist Michael Ricafort said.

On the domestic side, economists see recent unfavorable data as additional factors to the peso’s weakness.

“Domestic developments have also contributed to the Philippine Peso’s weakness, in particular the stark widening of the country’s import bill, due to bloated dollar values for products and an actual increase in import volumes as the economy reopens,” Mapa said.

“Peso is also weaker after softer unemployment and manufacturing [MISSI] data that could already reflect the effects of higher prices and higher long-term interest rates that may be a drag on economic recovery prospects,” ricafort, meanwhile, said.

In its research note on Thursday, Fitch Solutions— the research arm of the Fitch Group—said the local currency is expected to see “further weakening” against the dollar in the coming months.

“The widening of the Philippines’s current account deficit coupled with tightening global monetary conditions will likely exert further downward pressure on the peso. Nevertheless, the pace of peso depreciation will likely be relatively gradual in the coming months as the Bangko Sentral Ng Pilipinas [BSP] has ample foreign reserves to intervene in the foreign exchange market if necessary to smooth downside volatility,” Fitch Solutions said.

“Indeed, despite the steep depreciation since the start of the year, the peso still appears slightly overvalued in real effective exchange rate terms, as compared to its 10year moving average. However, we acknowledge that the peso is not too overvalued and as such downside pressure will be limited. Furthermore, we expect higher structural inflation in the Philippines to reduce export competitiveness, which will in turn weigh on the nominal exchange rate,” it added.