The peso fell to its weakest level in more than sixteen-and-a-half years against the US dollar Wednesday, amid the possibility of more aggressive interest rate hikes by the US Federal Reserve that boosted the greenback against global currencies.
The peso closed at 54.47, down from 54.265 a dollar Tuesday. It was the unit’s lowest level since it settled at 54.74 against the greenback on Nov. 21, 2005. Total volume turnover reached $1.348 billion.
BDO Unibank Inc. chief market strategist said the dollar bull momentum remains high, and the peso may further breach the 55-a-dollar mark. “With yesterday’s test of the 54.40, a swift break above the 54.50 levels will put the 55.00/55.75 levels to the test,” he said.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., attributed the peso’s decline to concerns “over risk of possible US recession amid more aggressive Fed rate hikes, a day before the widely expected hike in local policy rate by at least 25 basis points [by the Bangko Sentral ng Pilipinas]”.
“The peso [is] also weaker after the widest balance of payments deficit since February 2021 and some pick-up in new COVID local cases recently,” Ricafort said.
ING Bank Manila senior economist Nicholas Mapa said the peso was weaker “on general strong US dollar theme.”
“[The] peso [was] also retreating given relatively dovish stance by BSP [Bangko Sentral ng Pilipinas] compared to other central banks, who have adopted a more aggressive tightening stance,” Mapa said.
Mapa said the peso was the worst performing currency in the region since June 10, “highlighting that a widening policy differential can also weigh on a currency.”
The peso retreated for several days against the greenback since the aggressive 0.75-basis point hike in the policy rate by the US Federal Reserve last week, the biggest adjustment since 1994. Economists earlier said this would lead to a stronger US dollar against global currencies.
The inter-agency Development Budget Coordination Committee was expecting the peso to trade within a range of 51 to 53 against the dollar this year. The peso ended 2021 at 51 against the dollar, down from 48.023 on the last trading day of 2020.