By Julito G. Rada and Jennifer B. Austria
The peso plummeted to a new low of 58.99 against the US dollar, while the local stock market entered the bear territory Tuesday on the increasingly hawkish tone of the US Federal Reserve that led to sell-off in global equities.
The peso lost P0.49 Tuesday from P58.50 a dollar on Sept. 23, as investors now expect another 75-basis-point hike by the US Federal Reserve that boosted the greenback against global currencies.
The peso-dollar trading volume reached $1.062 billion, up from $985 million on Friday.
Rizal Commercial Banking Corp. chief economist Michael Ricafort in an emailed statement attributed the stronger dollar to Fed signals of another l75-basis-point rate hike in November.
Ricafort said the “higher US interest rates/bond yields increase the attractiveness of the US dollar with high interest rate income on US currency-denominated deposits/bonds/other fixed income instruments.”
He said the benchmark 10-year US Treasury yield reached a new 12-year high of 3.93 percent on Sept. 26.
The record low British pound and weaker euro also added to the strong US dollar narrative.
“The recent sell-off in the global stock and bond markets also due to more aggressive Fed/other central bank rate hikes and risks of US recession also supported the US currency as a settlement currency for global investors as well as a safe haven amid increase global market risk aversion,” Ricafort said.
The US Fed raised the policy rate by 75 basis points last week to control inflation in the world’s biggest economy.
Meanwhile, local stocks entered the bear territory after the Philippine Stock Exchange index plunged to a 23-month low amid massive market sell off caused by rising inflation rate, weakening of the peso and increasing interest rates.
The PSEi fell below the 6,000-point level before closing at 6,020.70, down 3.8 percent or by 239.47 points from the previous trading day.
A bear market occurs when share prices fall 20 percent or more from recent highs due to negative investor sentiment.
“The market sell-off resumed with local shares on the back of an aggressive Federal Reserve and surging interest rates, which in turn have roiled currency markets,” Regina Capital and Development Corp head of sale Luis Limlingan said.
“The Federal Reserve’s aggressive hiking campaign, coupled with the UK’s tax cuts announced last week caused the US dollar to surge, pushing the peso to the P59 territory,” he said.
The dollar lost a little of its strength Tuesday after starting the week by surging against major peers, including a record high versus the pound, but while equity markets stabilized, sentiment remained dampened by recession fears.
Central banks around the world are ramping up interest rates to fight inflation, but the main focus is on the US Federal Reserve’s increasingly hawkish tone that has seen it unveil three successive bumper hikes with a warning of more to come.