Home Banking & Finance Peso to drop ahead of Fed, BSP
Peso to drop ahead of Fed, BSP
THE PESO will likely weaken anew this week due to escalated geopolitical tensions overseas and in anticipation of the possible policy tightening of the local and US central banks.
On Friday, the local unit closed at P54.04 versus the greenback, slightly stronger than the P54.075 finish on Thursday amid some respite from geopolitical tensions.
Week on week, the peso declined from its P53.97 finish on Sept. 14.
Guian Angelo S. Dumalagan, Land Bank of the Philippines chief economist, said the dollar is expected to appreciate this week due to “escalating geopolitical concerns abroad and widespread expectations of another US rate hike on Sept. 27.”
On Monday, he said the dollar might strengthen as investors flock to safer currencies following negative developments on the US-China trade talks as well as uncertainties on the ongoing Brexit negotiations.
Last week, China imposed levies on $60 billion worth of American products in retaliation to the $200-billion tariffs on Chinese goods that will be in effect starting Monday.
A senior White House official said on Friday that Washington is optimistic about finding a way forward in its trade clash with Beijing, although it does not have a scheduled date for further talks, Reuters reported.
“Meanwhile, the EU and the UK have not made significant progress on the Brexit trade deal, with Prime Minister Theresa May saying that ‘no deal is better than a bad deal’,” Mr. Dumalagan added.
The market economist noted the greenback may appreciate again after likely moving sideways on Tuesday and Wednesday “fuelled by possible rate hike of the US Federal Reserve and expectations of more hawkish cues” from Fed officials Jerome Powell and Robert Kaplan.
The Fed is widely expected to raise interest rates this week amid tightening job market and inflation surpassing the 2% target. Another round of tightening is also expected in December, as well as two more next year.
“Of course, if the rates keep on going up in the US, it will put pressure for emerging markets, causing Asian currencies to further depreciate,” a foreign currency trader said in a phone interview on Friday.
On the other hand, the dollar’s ascent might be capped by possible rate hike from the Bangko Sentral ng Pilipinas, which is also widely expected by the market.
In a BusinessWorld poll, at least 15 economists expect the central bank to tighten its policy settings by another 50 bps to temper inflation expectations.
“The policy rate gap between the Philippines and the US is a relevant concern, as it is one [of the] factors contributing to the peso’s weakness,” Mr. Dumalagan noted.
Meanwhile, the trader noted that various central banks “seems to be talking and employing a coordinated effort to address the problem.”
“If this becomes the strategy, it will be more effective going forward,” the trader said.
For this week, Mr. Dumalagan expects the peso to move between P53.80 and P54.40 versus the dollar, while the trader gave a P53.87-P53.28 range. — Karl Angelo N. Vidal