In a report sent to journalists, Fitch Solutions Macro Research said higher inflation could pressure the peso, which could depreciate further by 3.0 percent to P54.13 versus the greenback by end-2019.
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Peso seen weakening to 54.13:$1 by end-2019
(Philstar.com) - January 9, 2019 - 4:02pm

MANILA, Philippines — The Philippine peso may continue its weakening trend against the US dollar over the coming months to end 2019 above the P54-per-dollar level, a Fitch unit said Wednesday.

In a report sent to journalists, Fitch Solutions Macro Research said higher inflation could pressure the peso, which could depreciate further by 3.0 percent to P54.13 versus the greenback by end-2019.

“We expect the Philippine peso to weaken slightly against the dollar within the trend channel in the near-term given the persistent twin deficit situation, political uncertainty, and a still-negative real interest rate differential with respect to the US,” Fitch Solutions said.

The peso capped off 2018 at P52.58 versus the dollar, weaker than its 2017 close of P49.93. Last October 4, the local unit ended at P54.325 against the dollar, which was the peso’s weakest in almost 13 years.

The peso has since recovered from being the worst-performing currency in the region and is now the third-worst next to the Indian rupee and the Indonesian ringgit.

According to Fitch Solutions, tumbling oil prices will likely feed through into lower trade deficit over the coming months and reduce downward pressure on the peso. Meanwhile, a less hawkish US Federal Reserve and expectations of a growth slowdown in the US may weigh on the greenback, it added.

“Risks to our PHP view are tilted slightly to the downside. On the one hand, a recession or sharp economic slowdown in the US could see the US Fed halt or even reverse its rate hiking cycle, which could be broadly negative for dollar strength,” the Fitch unit said.

“On the other hand, more on the downside, the Philippines has been increasing economic linkages and exposure to China (and moving away from the west), at a time when the Chinese economy is experiencing a slowdown and embroiled in a trade dispute with the US. This could result in more downside volatility in the PHP should external financing from China dry up,” it added. — Ian Nicolas Cigaral

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