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The Philippine peso weakened to a new all-time low of P62.565 per dollar, driven by higher US yields, geopolitical tensions in the Middle East, expectations of tighter US monetary policy, and seasonal increases in local importations.
broadening price pressures fromweighed on the currency and raised the risk of a breach of the P63 level. The peso weakened by 16.5 centavos to P62.565 against the greenback from its previous record low of P62.40 on Tuesday, Bankers Association of the Philippines data showed.
The local unit opened Wednesday’s session flat at P62.40 per dollar, which was already its intraday best and was the peso’s previous trough. Dollars exchanged rose to $1.828 billion on Wednesday from $1.306 billion on Tuesday.
“The peso’s weakness reflects a combination of higher US yields, expectations for tighter US monetary policy, elevated oil prices, and geopolitical uncertainty,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message. “While the recent Middle East tensions have added to market caution, the pressure on the peso stems from broader global factors.
” A trader said in a text message that the peso’s continued decline also reflected the overall outlook on the Philippine economy and rate differentials.
“The peso recorded a new all-time low amid prevailing risk off sentiment in the market due to lingering tensions in the Middle East and hawkish remarks from US Federal Reserve Chair Kevin Warsh increasing hopes of a hike,” a second trader said by telephone.
“The market continued to rally, trackingIn his first Jackson Hole address last week, Mr. Warsh said policymakers may need to raise borrowing costs if inflation does not easeDollar demand was also supported by the seasonal increase in local importation activities in the third quarter in preparation for the expected rise in demand in the last three months of the year, Rizal Commercial Banking Corp. Chief Economist Michael L.For Thursday, Mr. Ricafort sees the peso moving between P62.45 and P62.7 against the dollar.
Analysts expect the peso to test the P63-per-dollar level in the near term as pressure from the intensifying Middle East conflict will“The P63 level is an important psychological marker, but the currency’s direction will continue to depend largely on external developments,” Mr. Asuncion said. Persistent tensions in the Middle East and elevated oil prices add risk to the peso hitting the P63-per-dollar level, the second trader said, noting this would stoke inflation and raise concerns about the growth outlook.
However, the trader noted the local unit could remain under the P63 level as the market is overbought, with possible profit taking and technical correction.
“The P63 level will naturally be watched as the next psychological level but it should not be interpreted as a fundamental threshold or forecast,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said in a Viber message. He said the peso may remain volatile in the near term as markets continue to digest movements in oil prices, US interest rates, and geopolitical developments.
“Rather than focusing on how low the peso can go, the more important questions are whether the depreciation remains orderly, how persistent it becomes, and whether the underlying external pressures begin to ease,” Mr. Rivera said. “There is certainly a risk-off component associated with the renewed Middle East hostilities, but the pressure is broader than a knee-jerk reaction.
Higher oil prices, rising US Treasury yields, and stronger safe-haven demand for the dollar are reinforcing one another, and these are particularly relevant for an oil-importing economy like the Philippines,” Mr. Rivera said. The first trader likewise said the peso’s continued slide will add to inflationary pressures especially as dollar demand is expected to increase in the next few months.
“The peso’s weakness is a factor for the BSP because of its potential impact on inflation, particularly through higher fuel and import costs. However, the key question is whether the depreciation proves persistent enough to aThe Monetary Board last week raised benchmark rates by 25 basis points for a third straight meeting in a preemptive move to combat broadening price pressures from volatile global oil prices, the looming “Super El Niño,” and potential minimum wage increases BSP Governor Eli M. Remolona, Jr. has said they hope there will be no more need for further tightening, but still left the door open for more hikes as necessary to steer inflation back to their 3% target.
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