Peso weakens on increased demand for the dollar

THE PESO weakened versus the greenback on Thursday on expectations of more imports following the release of data showing increased factory output on the back of the economy’s gradual reopening.

The local unit closed at P49.875 per dollar on Thursday, losing 8.5 centavos from its P49.79 finish on Wednesday, based on data from the Bankers Association of the Philippines.

This was the peso’s weakest close since its P49.92-a-dollar finish on June 26, 2020, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The peso opened Thursday’s session at P49.85 versus the dollar. Its weakest showing was at P49.97, while its intraday best was at P49.79 against the greenback.

Dollars that changed hands increased to $1.127 billion on Thursday from $937 million on Wednesday.

A trader said the peso weakened due to increased demand for the dollar as the country’s economic situation improves.

Data released by the Philippine Statistics Authority showed Philippine factory output continued to expand in May on the back of businesses’ higher operating capacity as restrictions were eased.

Factory output, gauged through the Volume of Production index, surged by 265% in May following its 155.6% expansion in April, based on preliminary results of the Monthly Integrated Survey of Selected Industries.

Meanwhile, Mr. Ricafort said the peso dropped after the US Federal Reserve said uncertainties continue to hound the world’s largest economy.

The minutes of the Fed’s June meeting released on Wednesday showed a “substantial majority” of central bank officials acknowledging risks from higher inflation, Reuters reported.

However, the minutes did not show clearer hints on the timeline of the reduction of the Fed’s bond purchases and its rate hikes.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno yesterday said the peso will continue to get support from the country’s ample foreign reserves, remittances, and business process outsourcing (BPO) receipts, even as it nears the P50-per-dollar level.

Mr. Diokno said in an online briefing that the dollar has been gaining ground against “almost all major currencies”.

“That means that it is dollar that is strong, not the peso that is weak,” he said.

“As you can see, our defense for the peso right now is our hefty gross international reserves and the steady inflow of dollars brought about by various sources like OFW (overseas Filipino workers) remittances, payment for BPO and foreign direct investments,” Mr. Diokno added.

The central bank chief also reiterated that the BSP only participates in foreign exchange trading “to minimize the fluctuations” in the market.

For Friday, Mr. Ricafort gave a forecast range of P49.75 to P49.95 per dollar, while the trader expects the local unit to move around a weaker range of P49.80 to P50 versus the greenback. — LWTN with Reuters