Peso breaches 50 to $1

MANILA, Philippines - The peso breached the 50 to $1 level yesterday, closing at its weakest in more than two months amid the hawkish statements made by members of the US Federal Reserve after it raised interest rates for the third time in six months.

The peso shed 19 centavos to close at 50.1 to $1 from Monday’s 49.91 to $1. It opened at 49.99. 

This was the lowest since the local currency closed at 50.08 to $1 last April 7. Volume was heavy at $1.15 billion from $572.6 million in Monday, indicating the Bangko Sentral ng Pilipinas (BSP) entered the market.

BSP Governor Amando Tetangco Jr. told reporters the peso together with other currencies in the region weakened against the dollar.

“It is a reaction to external developments particularly the hawkish statements of Fed officials overnight. So all regional currencies have responded the same way. We are just moving with other regional currencies,” Tetangco said.

The US Fed raised interest rates by another 25 basis points last June 15 and maintained its outlook for one more hike for this year despite growing concerns over weak inflation.

This was the third time the US central bank hiked interest rates as part of a path to tighten monetary policy.

New York Fed president William Dudley said US inflation is a bit low but should rebound alongside wages as the labor market continues to improve.

On the other hand, Chicago Fed president Charles Evans said the US central bank should move only slowly to raise interest rates and trim its massive bond portfolio with inflation stubbornly soft despite a 16-year low unemployment rate.

Tetangco said authorities maintain a market-determined foreign exchange rate policy and the central banks does not support a certain level of exchange rate or a certain trend in the foreign exchange rate.

“Our policy is (keeping a flexible exchange rate). We want to minimize sharp fluctuation and volatility,” he said.

Consistent with the country’s floating exchange rate regime, Tetangco explained the BSP enters the foreign exchange market only to smooth destabilizing volatilities in order to maintain orderly market conditions.

Security Bank said in its Daily Market Edge report the dollar resumed its ascent after Dudley echoed the hawkishness of US Fed chair Janet Yellen last week.

“We still prefer to own dollars as we anticipate a hawkish front from the Fed speakers this week,” Security Bank said.

HSBC chief market strategist Willem Sels said the dollar is likely to weaken with the expected rate hike this year and another one instead of three next year.

“The Fed will be going slow in interest rate hike. We expect one in December and one for next year because inflation in the US remains quite low,” he added.

  HSBC sees the peso closing at 51 to $1 by the end of the year.