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Peso to weaken further on geopolitical tensions

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THE PESO may see continued weakness this week mainly due to geopolitical tensions caused by a US airstrike that killed Iran’s most prominent military official.

The local unit closed at P51.09 a dollar on Friday, dropping 40.5 centavos from its P50.685 close on Thursday, according to data from the Bankers Association of the Philippines.

Week on week, the peso depreciated by 45.5 centavos against its P50.635 close on Dec. 27.

Economists attributed the peso’s decline last week to geopolitical tensions due to the US airstrike that killed one of Iran’s key military officials.

“This trend and significant decline points to the unfolding of geopolitical risk. An Iranian top commander has been killed apparently in an attack by the US and is said to raise tensions significantly in the region,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a text message on Friday.

The said incident has led to an “increase in risk aversion,” according to Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC).




“The US dollar was higher amid some increase in global market risk aversion after the latest geopolitical risks involving Iran, thereby leading to some flight to safe havens, including some profit taking in Emerging Markets and riskier asset classes,” he said in a text message on Saturday.

Reuters reported that Iranian major-general Qassem Soleimani died on Friday following a US air strike on his convoy at Baghdad airport.

The Pentagon said the strike was aimed at deterring future Iranian activity in Iraq.

Mr. Soleimani, commander of the Quds Force of Iran’s Revolutionary Guards, has helped Iran fight proxy wars across the Middle East. He died alongside Iraqi militia commander Abu Mahdi al-Muhandis.

Iranian general Gholamali Abuhamzeh was quoted by Tehran-headquarted Tasnim news agency to have said that the country will retaliate.

“Vital American targets in the region have been identified by Iran since long time ago… Some 35 US targets in the region as well as Tel Aviv are within our reach,” he was quoted as saying.

Meanwhile, US President Donald J. Trump on Saturday said on Twitter that Washington will hit 52 Iranian sites “very hard” should Iran retaliate after the drone strike.

“They attacked us, & we hit back. If they attack again, which I would strongly advise them not to do, we will hit them harder than they have ever been hit before,” Mr. Trump said in a tweet on Sunday.

Factors that can affect currency trading this week will include developments in the Middle East and some local data.

“We’re watching this emerging geopolitical issue closely. This may impact the peso strongly if it continues or escalates,” UnionBank’s Mr. Asuncion said.

Aside from this issue, RCBC’s Mr. Ricafort cited local developments as factors that could affect peso trading this week.

“Another important catalyst is the release of the least inflation data for the month of December. President [Rodrigo R.] Duterte is also scheduled to decide on contracts with Metro Manila’s water utilities on Jan. 6 is another possible catalyst on the local financial market,” he said.

BusinessWorld’s poll of 13 economists yielded a median estimate of 2.1% for December headline inflation, with prices rising due to seasonal demand over the holidays as well as base effects diminishing and the weather disturbance caused by Typhoon Ursula.

If realized, this would be at the lower end of the 1.8%-2.6% forecast range of the Bangko Sentral ng Pilipinas (BSP) and higher compared to the 1.3% print in November.

For this week, Mr. Asuncion said the peso could move around the P50.90 to P51.20 band, while Mr. Ricafort gave a forecast range of P50.80-51.30. — L.W.T. Noble with Reuters









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