Peso sinks to new 10-year low ahead of Fed minutes

Posted on July 06, 2017

THE PESO reversed its gains against the dollar yesterday, plunging to its weakest level in more than a decade on Wednesday amid heightened caution ahead of the release of the minutes of US Federal Reserve’s June meeting and safe-haven buying following geopolitical uncertainties in North Korea.

The peso weakened to a fresh low ahead of the Federal Reserve meeting minutes. -- BW FILE PHOTO
The local currency closed at P50.60 against the greenback, dropping eight centavos from its P50.52-per-dollar finish on Tuesday.

Yesterday’s finish was the peso’s weakest level in over 10 years or since it ended at P50.735 per dollar on Sept. 1, 2006.

The peso opened at P50.54 during Wednesday’s trading and hit a high of P50.47-to-a-dollar within the session before closing at its intraday trough.

Dollars traded amounted to $507 million, down from $540.3 million seen the previous day.

Two traders attributed the peso’s decline against the dollar to cautiousness ahead of the release of the Federal Open Market Committee (FOMC) meeting minutes.

“The peso just moved sideways today ahead of the FOMC minutes,” one trader said by e-mail on Wednesday.

Similarly, the other trader said by phone: “Markets braced for the FOMC minutes and non-farm payrolls this weekend. So this was line with a stronger dollar.”

Both traders also said North Korea’s missile launch on Tuesday morning still affected the foreign exchange market yesterday.

“The slight depreciation of the currency might be attributed to safe-haven buying following the missile test fire in North Korea,” one trader said.

Reuters reported that Pyongyang made fired an intercontinental ballistic missile on Tuesday, triggering geopolitical tensions with neighboring countries and the US anew as it landed in Japanese waters.

“We saw demand in the afternoon but mainly we just also saw a strong dollar across the board,” another trader said by phone.

The trader also noted the Bangko Sentral ng Pilipinas (BSP) was monitoring the P50.60-to-the-dollar level yesterday.

As regulator to the Philippine financial system, the BSP sometimes intervenes in the daily foreign exchange market in order to temper any sharp peso swings and maintain its stability.

For today, the first trader sees the peso moving within P50.60 to P50.80 versus the dollar, while the other trader forecasts a P50.40-P50.70 range. The third trader said the exchange rate may settle within P50.60 to P50.70.

“The peso might initially depreciate due to likely hawkish FOMC minutes, but it might recover towards the end of the day because profit taking ahead of the US non-farm payrolls data,” one trader noted.

Emerging Asian currencies edged up on Wednesday as the dollar slipped against the yen on concerns about rising tensions between the United States and North Korea and investors trimmed greenback positions ahead of Federal Reserve minutes.

North Korea said its newly developed intercontinental ballistic missile can carry a large nuclear warhead, triggering a call by Washington for global action to hold it accountable for pursuing nuclear weapons. Pentagon condemned the missile test and said it was prepared to defend the United States and its allies against the growing threat from North Korea.

“The greenback is a little softer in early trade but background nervousness, especially on the geopolitical front, may temper near-term Asian FX (foreign exchange) resilience,” said Emmanuel Ng, FX strategist at Oversea-Chinese Banking Corporation.

The dollar shed 0.3% in early trade to fetch 112.95 yen, slipping further from Monday’s 1-1/2-month high of 113.48. awaited minutes of the Fed’s June meeting, to be released later in the day, to gauge how committed it was to hiking rates gain this year and any detail on plans to wind back its massive balance sheet.

“The fast money is maybe just lightening up on the US dollar ahead of the (Fed) minutes,” Mr. Ng said.

Markets imply around a 60% chance of another rate rise in December, and a much shallower path of future increases than most Fed members. Asian currencies, the Chinese yuan inched up 0.1% in early trade, snapping two consecutive days of declines, while the Singapore dollar rose as much as 0.2%.

South Korea’s won climbed 0.2% on Wednesday, heading for its first session of gains in four.

The won slumped to more than 16-week lows in the previous session following simmering tensions on the Korean peninsula. -- Janine Marie D. Soliman with Reuters