Peso pulls back from rally to sink to over 3-month low

MANILA, Philippines — The peso sank to over 3-month low on Wednesday, just 2 days after rallying to the P47-level as surging US Treasury yields sent domestic players scrambling for dollars.

The local currency closed at P48.38 against the greenback, 13 centavos weaker than its previous finish of P48.25. This was the peso's weakest performance since it closed at P48.4 against the greenback on Nov. 4, 2020, data showed.

Wednesday's closing was a sharp depreciation from Monday's P47.93, which was the local unit's firmest finish in over 4 years. Sought for comment, Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said more attractive yields in the US likely pushed up local demand for dollars.

"Overarching theme in the market recently has been the rise of US yields holding at near one-year high. I think domestic players have been rethinking hard if this is the turning point and one cannot be afford to be late to ride the wave," Asuncion said in a text message.

"We’ve seen some USD strengthening and has also added to the overall risk on sentiment in various markets," he added.

Bets that US President Joe Biden's $1.9 trillion stimulus package will give an extra boost to the world's top economy — and the prospect of business reopenings — have fired inflation expectations, sending yields for 10-year US Treasury close to one-year highs. 

That led to concerns about rising borrowing costs since the 10-year benchmark influences loans in the US, with market-watchers fearing the higher yields could staunch the recovery and hit consumer spending.

Since the pandemic struck, the peso has been outperforming other Asian currencies, something that economic managers have tried to paint as a positive development that supposedly signaled the economy’s firm footing against the catastrophe brought by the health crisis.

But analysts are one in saying that such a strength largely emanates from the pandemic-induced recession, which sapped demand for dollars as imports fall.

Moving forward, London-based Oxford Economics expects the peso to temper its rally this year as the economy's current account surplus moderates on the back of improving economic environment.

"We still forecast the Philippines to retain its current account surplus, which will benefit the PHP. But the peso is likely to appreciate less than last year," Oxford Economics said in a research note. — with AFP