THE PESO dropped further against the greenback on Wednesday as foreigners exited the local stock market and on expectations of improved US data, which could hasten the US Federal Reserve’s policy tightening.
The local unit closed at P48.15 versus the dollar on Wednesday, weakening by 1.5 centavos from Tuesday’s finish of P48.135, data from the Bankers Association of the Philippines’ website showed.
This was the peso’s worst close in three weeks or since its April 29 finish of P48.315 per dollar.
The peso opened Wednesday’s session at P48.125 against the dollar. Its intraday best was at P48.10, while it dropped to as low as P48.175 versus the greenback during the trading session.
Dollars traded went down to $746.88 million on Wednesday from the $1.039 billion seen on Tuesday.
“The peso [was] weaker after the large net foreign selling at the local market today amounting to $134.6 million from the $1.8 million on Tuesday,” said Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort in a text message on Wednesday.
Rising global oil prices also continued to affect the peso, he said.
Oil was little changed as traders weighed expectations of improving demand in the US against the possibility of new supply from Iran. Global benchmark Brent crude was up 5 cents at $68.70 and US crude fell 3 cents to $66.04 per barrel, Reuters reported.
Meanwhile, a trader said peso weakened due to market expectations of strong US economic data, which could cause the Fed to taper its bond purchases soon.
Federal Reserve policy makers have begun to acknowledge they are closer to debating when to pull back some of their crisis support for the US economy, even as they say it is still needed to bolster the recovery and employment, Reuters reported.
This suggestion that talking about tapering could become appropriate is a shift from just a month ago when Chair Jerome Powell said it was “not yet” time to even contemplate having that conversation.
Since their April meeting, two regional Federal Reserve bank presidents have publicly urged that the discussion begin soon, and others have highlighted the risks should a current round of price increases become a more embedded cycle of inflation.
The Fed has promised it won’t raise rates until the economy is back to full employment and it sees inflation reach 2% and poised to rise above that level.
The US central bank will get new inflation data on Friday, with forecasters expecting that prices for personal consumption goods excluding food and energy rose at a 2.9% annual rate in April. That would be the highest reading since June 1993 and beyond the Fed’s 2% inflation target.
The Fed meets next on June 15-16.
For Thursday, the trader expects the peso to move between P48.05 and P48.25 versus the dollar, while RCBC’s Mr. Ricafort gave a forecast range of P48.10 to P48.20. — IBC with Reuters