The peso breached the 54-per-dollar level for the first time in nearly 13 years amid reports of widening trade deficit and worsening global trade war between the United States and China.
The peso lost P0.19 to close at 54.13 against the greenbackWednesday, down from 53.94 Tuesday. It was the local currency’s weakest finish in nearly 13 years, or since it settled at 54.155 a dollar on Dec. 2, 2005. Volume turnover reached $772.5 million Wednesday, up from $434.1 million Tuesday.
The peso opened Wednesday’s trading at 53.90, but touched 54.14 before settling at 54.13.
Guian Dumalagan, economist of Land Bank of the Philippines, said the financial market volatility was mostly due to the “renewed trade tension as China lodged permission with the World Trade Organization to levy tariff on the US.”
“China told the WTO on Tuesday it wanted to impose $7 billion a year in sanctions on the US,” Dumalagan said.
Dumalagan said other contributors to the weak peso were the developments in Europe after France cut its economic growth estimate for this year and next to 1.7 percent from 2 percent and 1.9 percent, respectively.
The widening trade gap also contributed to the weakness of the peso that was battered by the surging dollar in the past few months.
The Philippine Statistics Authority reported Tuesday that the country’s balance of trade-in-goods’ deficit widened by 171 percent in July to $3.55 billion from a shortfall of $1.31 billion a year ago, as imports jumped 31.6 percent while exports barely grew 0.3 percent.
This brought the trade deficit in the first seven months to $22.49 billion, significantly higher than $13.055 billion registered in the same period last year.
Total imports surged 31.6 percent to $9.40 billion in July from $7.14 billion a year earlier. Exports grew 0.3 percent to $5.85 billion from $5.83 billion.
Finance Undersecretary Gil Beltran said earlier the US Federal Reserve monetary normalization was propping up the dollar against other currencies.
“The Philippine peso has been moving in tandem with Asian currencies amid severe exchange rate volatility spawned by the global trade war, the Turkey-Argentina crisis and the Fed monetary normalization,” Beltran said in an economic bulletin.
Nicholas Mapa, senior economist of ING Bank, said the recent strong rhetoric from the Bangko Sentral ng Pilipinas in response to soaring inflation and to a weakening peso could help to stem the currency’s weakness and prevent the trade gap from widening further.
Bangko Sentral Governor Nestor Espenilla Jr. said the regulator was ready to take strong immediate actions to address excessive exchange rate volatility and temper inflation.
Adding to the weakness of the local currency was the 6.4 percent inflation in August 2018, the fastest in more than nine years.
This brought the average inflation in the first eight months to 4.73 percent, above the government’s official target range of 2 percent to 4 percent for the year.
The peso closed 2017 at 49.93 against the dollar.