Peso closes in on 63:1$
The Philippine peso edged ever closer to the 63-per-dollar threshold on Tuesday, battered by a resurgent greenback as rising US Treasury yields gave dollar bulls fresh reason to pile in.
The local currency opened at 62.90 against the greenback before recovering to 62.835 by the close, up 2.5 centavos from its previous finish, data from the Bankers Association of the Philippines showed.
But the peso’s intraday low of 62.925 set another record, surpassing the previous low of 62.875 set on Sept. 14. Trading volume nearly doubled to $1.9 billion from $969.22 million in the previous session.
The dollar strengthened toward a two-week high, Reuters reported, as surging oil prices pushed Treasury yields to their highest levels since 2007 and reinforced expectations that the Federal Reserve will raise interest rates this week.
The benchmark 10-year US Treasury yield climbed as high as 5.0266 percent in Asian trading hours. Higher US yields can bolster the appeal of dollar-denominated assets, putting additional pressure on currencies such as the peso.
The peso’s latest slide is bringing the currency within striking distance of a level that could test the Bangko Sentral ng Pilipinas’ (BSP) tolerance for market volatility. A trader said the central bank may step in to prevent the peso from breaching the 63-per-dollar territory.
“Growing market expectations of a US policy rate hike continue to pin the local currency on record lows,” the trader said. “It is somehow expected that the BSP could potentially intervene around the 63-level.”
The BSP raised its benchmark interest rate by a quarter percentage point last month to 5 percent, its third increase in the current tightening cycle. The central bank described the move as a preemptive response to emerging inflation risks.
Yet higher Philippine interest rates have done little to stem the peso’s slide, which has carried the currency well beyond the 60-to-62-per-dollar range assumed by the Marcos administration for this year.
BSP Governor Eli Remolona Jr. has said the central bank does not defend a particular exchange rate, allowing market forces to determine the peso’s value while intervening only to curb excessive volatility that could stoke inflation.
The country’s gross international reserves, which the BSP can use to temper large swings in the spot foreign exchange market, remained ample at $104.8 billion as of August, although that was down 2.1 percent from a year earlier.
Still, the trader said structural pressures on the peso could limit the effectiveness of any intervention.
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