Fears of drawn-out Middle East war sinks peso to new record low
The Philippine peso started the trading week plummeting past the 60.8 level to a fresh intraday record low, overpowered by a rallying US dollar amid growing investor fears of a drawn-out war in the Middle East.
The latest bout of depreciation has fueled concerns that the currency could weaken toward the 61 level, though traders do not expect such a slide to be imminent.
The local currency weakened by 14 centavos to finish at 60.69 per dollar, surpassing its previous record low close of 60.55 set in the prior session. It fell as far as 60.84 intraday before trimming some of its losses.
Trading volume climbed to $2 billion, up from $1.3 billion a day earlier.
The decline followed weekend developments that heightened fears of an all-out regional conflict, reinforcing the appeal of safe-haven assets like the US dollar. The Washington Post reported that the US is preparing for weeks of potential ground operations in Iran, while the entry of Yemen’s Iran-aligned Houthi forces opened a new front in the conflict.
“The continued weakness of the peso can be attributed to dimming prospects of a near-term de-escalation between US and Iran, including reports of potential land-based military deployment of US troops near Iran,” a trader said.
Another trader added: “Peso weakness is still US dollar strength plus oil demand, with thin liquidity exaggerating moves.”
A weaker peso carries mixed consequences for the Philippines. It boosts the domestic value of remittances sent home by millions of overseas workers and could make Filipino exports more competitive.
But the weakness also risks raising import costs and reigniting inflation. Prolonged depreciation could likewise inflate the peso value of foreign debt held by the government and private firms.
The Bangko Sentral ng Pilipinas (BSP) left its benchmark interest rate unchanged at 4.25 percent at an off-cycle meeting last week, holding off on tightening despite rising inflation pressures from the Middle East conflict to avoid disrupting the economy’s fragile recovery from a recent graft scandal.
Governor Eli Remolona Jr. said the move past the 60-per-dollar level has not yet prompted heavy intervention, noting that the depreciation “is not necessarily a bad thing.”
Still, he said the central bank is closely monitoring undisclosed “thresholds” that help policymakers determine when the currency’s weakness becomes inflationary and warrants tighter policy or intervention in the spot foreign-exchange market.
Looking ahead, a drop toward the 61 level “is possible but not a straight line,” one trader said, adding that markets should expect choppy trading around the 60 to 61 range rather than a clean breakout.
Another trader said a slide toward 61 may not be imminent, noting that the central bank underscored its “hawkish” stance during last week’s surprise meeting.
Jonathan Ravelas, a senior adviser at Reyes Tacandong & Co., said the peso will likely trade in a 60.60 to 60.90 range in the near term.
