Peso exchange rate breaches 47:$1

The peso finally broke 47:$1 at opening trade yesterday, weakening further from 46.92 the day before as the US dollar continues to surge on US Fed interest rates’ hike possibly this month.

The local currency reached a high of 47.040 and ended with a morning average of 47.015, a small recovery for the peso.

The peso settled at 46.93 close of trading yesterday.

Foreign exchange market traders had long been anticipating the peso crossing 47 as there was stronger possibility of a depreciation bias as the rest of regional currencies continue to show weakness against the US dollar.

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Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said negative market sentiments continue to add to this depreciation bias. “It’s a regional thing,” he added.

Guinigundo said the speculation of US dollar is strong due to the impending normalization of the monetary policy in the US and this will continue to strengthen the greenback against regional currencies. “We’re (peso) affected in the herd mentality prevailing in the foreign exchange market.”

Earlier, Guinigundo also said that they believe the peso has the fundamental stability to withstand volatility pressures and that once the market has digested what is happening in the global financial markets, they will opt to stay and not move capital out of the region, specifically in the local market.

Metrobank subsidiary, First Metro Investment Corp. and its research partner University of Asia and the Pacific, in the meantime, said they expect the peso will remain weak until the end of 2015.

“The US dollar-peso rate should continue to weaken for the rest of the year as the US economy perks up, with policy rates rising by year-end,” the research note said. “The Chinese Yuan’s devaluation simply adds more reason to this continuing trend.”

Meanwhile, the country’s inflation rate is projected to average at one percent in the third quarter before registering some uptick towards the end of the year, closer to the lower end of the government’s two percent to four percent target.

“We expect headline inflation to average below one percent in the third quarter, and then rising a bit in the fourth quarter,” according to the latest assessments of First Metro Investment Corp. and the University of Asia and the Pacific (FMICUA&P). “This should provide an added impulse to more consumer spending in the second half,” it added.

The FMIC and UA&P economists said it is very possible inflation rate will continue its downward spiral as food and oil prices remain soft.

Based on its latest “Market Call” issue, they project inflation of one percent for both September and October.

“Despite the falling inflation rates due to lower rice and food prices, and continuing weakness of