THE PESO retreated to its weakest close in 27 months amid geopolitical tensions in the Middle East and with markets being cautious over looming rate hikes in the United States.

The local unit closed at P51.50 per dollar on Wednesday, shedding 1.2 centavos from its P51.488 finish on Tuesday, based on data from the Bankers Association of the Philippines.

This is the peso’s weakest finish in 27 months or since it closed at P51.595 a dollar on Oct. 16, 2019, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. It also matched the peso’s P51.50 close on March 16, 2020, the early days of the pandemic.

The peso opened Wednesday’s session stronger at P51.47 versus the dollar. Its weakest showing was its close of P51.50, while its intraday best was at P51.41 against the greenback.

Dollars exchanged dropped $754.2 million on Wednesday from $841.6 million on Tuesday.

Mr. Ricafort said geopolitical risks in the Middle East, which in turn caused higher oil prices, led to the peso’s depreciation.

Reuters reported the United Arab Emirates late Tuesday called for a meeting of the United Nations Security Council to condemn an attack on Abu Dhabi on Monday by Yemen’s Houthi movement.

Brent crude futures inched up 39 cents or 0.5% to $87.90 a barrel at 0740 GMT on Wednesday, adding to a 1.2% jump in the previous session. The benchmark contract climbed to as high as $89.05 earlier in the session, its highest since Oct. 13, 2014.

US West Texas Intermediate (WTI) crude futures rose 64 cents or 0.8% to $86.07 a barrel, adding to a 1.9% gain on Tuesday. WTI earlier reached $87.08, its highest since Oct. 9, 2014.

Meanwhile, a trader said the market was cautious due to expectations of rate hikes from the US Federal Reserve.

Fed officials earlier signaled they expect up to three rate hikes this year to quell elevated inflation.

The Federal Open Market Committee will have its first policy review on Jan. 25-26.

For Thursday, Mr. Ricafort gave a forecast range of P51.35 to P51.55 per dollar, while the trader expects the local unit to move between P51.40 to P51.60. — Luz Wendy T. Noble with Reuters