The peso continued to post multi-year lows against the greenback Friday, weighed down by both external and domestic developments that trigger volatilities in the financial markets.
The peso further weakened to a fresh 10-year low to close at 50.40, nine centavos weaker than 50.31 on Thursday. It was the peso’s lowest level in more than 10 years since 50.43 on Sept. 12, 2006. Total volume traded reached $482 million, higher than $409 million in the previous day.
ING Bank Manila senior economist Joey Cuyegkeng said some of the domestic factors affecting the peso were the possible repercussions from other countries to Congress’ passage of the death penalty law and the market expectation that larger fiscal deficit spending would widen the trade gap and bring the current account to a deficit.
He said “this underpins the strong demand for US dollar as companies hedge dollar liabilities or liabilities. Market also expects monetary policy to remain steady in the very near term. These considered with the monetary tightening cycle in the US would lead to further weakness of peso… ,” Cuyegkeng said.
Cuyegkeng said the chances of a rate hike at the March meeting of the US Fed increased to 90 percent from a week ago’s 40 percent.
Cuyegkeng also said another factor that contributed to the declining peso was the uncertainty “over the leadership in Bangko Sentral ng Pilipinas after BSP Governor [Amando] Tetangco [Jr.] leaves.” Tetangco’s second term of office will expire in July this year.
Earlier, Amando Tetangco said currencies in the emerging market economies, including the peso, were seen to trade sideways ahead as financial markets await for clarity on the next moves of the US Federal Reserve.
Tetangco issued the statement after US President Donald Trump’s speech before the US Congress a day ago, where he said he was open to immigration reforms, shifting from his harsh statements on illegal immigration. But Trump did not provide specifics and did not comment on the proposed border adjustment tax to boost exports over imports.
“The market may turn its focus again on the Fed and expectations of its next moves. The peso and other EME currencies would likely trade in a relatively narrow band until more clarity comes from US policy makers,” Tetangco said.
Metropolitan Bank & Trust Co. said the peso would remain under pressure throughout this year amid volatile financial markets. It said the uncertainties surrounding the Fed rate hikes, Trump’s economic and fiscal policies, and Brexit negotiations were the main factors that influence the depreciation trend of emerging market currencies like the Philippine peso against the US dollar.