Peso nears 62:$1 mark, hits new record low
The Philippine peso fell to a record low on Wednesday, nearing 62 to the US dollar as lingering tensions in the Middle East and uncertainty over the path of US interest rates strengthened the greenback.
The local currency weakened to an intraday low of 61.995 during morning trading before paring losses to close at 61.815, down 3 centavos from its previous finish.
The intraday low surpassed the previous record of 61.85 set on July 24. Trading volume rose to nearly $1.9 billion from $1.3 billion in the previous session.
The dollar drifted near multimonth lows against major peers yesterday, but still gained against the peso as investors positioned ahead of the release of US Federal Reserve (Fed) minutes for clues on the outlook for interest rates. The prolonged conflict in the Middle East also supported demand for the US currency.
At home, markets are awaiting the next policy decision of the Bangko Sentral ng Pilipinas (BSP) on Aug. 27, with the peso’s weakness adding to the uncertainty facing the central bank as it weighs above-target inflation against the backdrop of slowing economic growth.
“The peso reached near the 62-level on safe-haven demand after the 60-day [memorandum of understanding] between US and Iran already expired, which triggered renewed market concerns,” a trader said. “The BSP could consider intervention at the 62-level, but breaching this level is not yet imminent due to still high uncertainty ahead of the BSP decision.”
Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said the peso may trade between 61.60 and 62 in the near term.
“The dollar is stronger for two reasons: First, investors are positioning ahead of the Fed minutes, hoping for guidance on the interest-rate outlook,” Ravelas said.
“Second, lingering geopolitical uncertainty in the Middle East is encouraging a flight to safety. In uncertain times, the US dollar remains the world’s preferred safe-haven currency,” he added.
Boon, bane
The peso’s weakness is creating both winners and losers across the Philippine economy.
For millions of families, remittances from overseas Filipino workers now translate into more pesos, potentially giving households greater spending power. Exporters may also benefit as a weaker currency makes Philippine goods more competitive overseas.
But a weaker peso also raises the cost of imported goods, while companies and the government face higher peso costs when servicing foreign-currency debt.
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.
The BSP has raised its benchmark interest rate by 50 basis points since April, including a quarter-point increase in June that brought the policy rate to 4.75 percent. The tightening has underscored the central bank’s effort to contain inflation as external risks mount.
Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, said the Philippines’ dependence on imported oil would continue to weigh on the peso as the conflict persists.
“Looking ahead, the outlook for the peso will depend largely on oil prices, developments in the Middle East and the direction of the US dollar,” Asuncion said. “If these external pressures persist, the peso could remain under pressure near current levels.”
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