Peso drops on US, North Korea tensions

Posted on August 10, 2017

THE PESO continued to weaken versus the dollar on Wednesday following a sell-off on the back of upbeat US labor data as well as geopolitical tensions involving the world’s largest economy and North Korea.

The local unit closed at P50.575 per dollar yesterday, 13.5 centavos down from Tuesday’s close of P50.44 against the greenback.

The peso traded weaker versus the dollar the entire day. It opened the session at P50.58, with its intraday peak at just P50.55 against the greenback. The peso’s worst showing for the day was seen at P50.68-to-the-dollar.

Dollars traded on Wednesday amounted to $631.5 million, higher than the $457.9 million that exchanged hands in the previous session.

Traders attributed the peso’s slump against the dollar to brewing tensions between the US and North Korea.

“Most of the market, particularly Asian currencies, were relatively weak due to a sell-off, which could have been triggered by tensions of the US and North Korea that prompted market players to buy on the dollar,” one trader said by phone on Wednesday.

Similarly, another trader said in a phone interview yesterday: “The peso weakened due to risk-off sentiment on the tension between the US and North Korea.”

US President Donald J. Trump said on Tuesday North Korea “will be met with fire and fury like the world has never seen” if it threatened the United States again. “North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen,” Trump told reporters at the Trump National Golf Club in Bedminster, New Jersey.

North Korea said on Wednesday it is considering plans for a missile strike on the US Pacific territory of Guam, just hours after Mr. Trump’s warning.

Pyongyang said it was “carefully examining” a plan to strike Guam, which is home to about 163,000 people and a US military base that includes a submarine squadron, an airbase and a Coast Guard group.

A Korean People’s Army spokesman said in a statement carried by state-run KCNA news agency the plan would be put into practice at any moment once leader Kim Jong Un makes a decision.

The sharp increase in tensions rattled financial markets and prompted warnings from US officials and analysts not to engage in rhetorical matches with North Korea.

“So yesterday’s story was really due to risk-off sentiment as there was demand for the dollar, and which also caused investors to resort to safe-haven buying of assets such as the Japanese yen, US Treasuries, which meant dollar and yen were trading lower,” one trader said.

Meanwhile, the other trader noted the risk-off sentiment from investors was also coupled with positive US labor data released on Wednesday. The US Labor Department, on its monthly Job Opening and Labor Turnover Survey, revealed US job openings -- which measures labor demand -- climbed to a record high in June, increasing by 461,000 to a seasonally adjusted 6.2 million.

Last month’s reading was the highest level since the data series began in December 2000, which highlighted that the labor market is tightening and would likely boost prospects of another monetary tightening by the US Federal Reserve by yearend.

For Thursday, one trader said the exchange rate could settle within P50.40 to P50.70 while the other trader said that the peso could trade within P50.50 to P50.75 against the dollar.

One trader said markets are now on a wait-and-see mode for US consumer price index data to be released on Friday, which will give further guidance to the peso-dollar pair’s trading. -- Janine Marie D. Soliman with Reuters