THE PESO continued to drop against the greenback on Tuesday, hitting another near 11-year low, as investors flocked to the safe-haven dollar following hawkish remarks from a US Federal Reserve policy maker.

The peso closed at P51.34 against the dollar yesterday, dropping by 26 centavos from Monday’s finish of P51.08 against the greenback.

Yesterday’s close was the local unit’s weakest level in nearly 11 years or since it ended at P51.38 per dollar on Aug. 25, 2006.

The peso traded weaker the entire day after it opened the session at P50.20 against the dollar. Its best showing was just at P50.13, while its weakest intraday level was at P51.35 versus the greenback.

Trading volume on Tuesday was at $659 million, soaring from the $291.5 million that changed hands in the previous session.

A trader attributed the peso’s slump against the dollar to hawkish comments from New York Federal Reserve President William Dudley, which caused a risk-off sentiment among investors.

“The peso closed lower against the dollar due to hawkish comment of Mr. Dudley regarding the Fed being open for another rate hike despite US inflation being lower. The Fed is still hawkish,” the trader said by phone on Tuesday.

“Risk-off sentiment is still present despite easing tension between the US and North Korea, so they resulted to safe haven buying because of Mr. Dudley’s statement,” the trader noted.

Mr. Dudley, one of the Federal Reserve’s most influential members, expects to raise interest rates once more this year, and to soon begin shedding some of the Fed’s bond holdings.

His steady-as-she-goes comments on inflation and rates appeared to respond to growing skepticism in financial markets that the Fed will raise rates by December, and they prompted a rise in the dollar and in bond yields.

“It depends on how the economic forecast evolves,” Mr. Dudley told the Associated Press. “If it evolves in line with my expectations … I would be in favor of doing another rate hike later this year.”

The Fed has raised rates twice this year and aims, according to forecasts, to hike once more. However a slide in inflation readings in recent months to 1.5%, below a 2% Fed target, has raised doubts among investors who give about a 40% chance of the Fed following through.

For today, the trader said the exchange rate could settle within P51.10 to P51.50, but noted the peso could see a correction should second-quarter gross domestic product (GDP) data come out stronger, aligned with market expectations.

A BusinessWorld poll of 12 economists and analysts late last week yielded a median GDP growth estimate of 6.5% for second quarter, a bit faster than the first quarter’s 6.4% but slower than the 7.1% recorded a year ago.

If realized, the figure would put the first-half average growth at 6.45%, just a notch below the low-end of the government’s 6.5%-7.5% target for the year.

Official second-quarter GDP data will be released on Thursday by the Philippine Statistics Authority. — Janine Marie D. Soliman with Reuters