The peso hit its weakest level in more than three weeks at P44.12 to $1 on Wednesday, dumped in favor of the US dollar by speculators who view the US currency as a safer bet against all external risk at the moment.
Sellers of the peso took positions in the greenback in anticipation of an increase in interest rates by the United States Federal Open Market Committee (FOMC) when it announces its policy decision late Wednesday after its meeting (Thursday Manila time).
Although the Philippine central bank is also expected to raise interest rates when the Monetary Board meets today (Thursday), the local market was seen taking bets in the dollar because of its broader cover against global risks.
“The US dollar is still the anchor currency for the global market, and further Fed tapering is going to help stabilize the greenback’s value, and could possibly drive it moderately higher,” said a foreign currency analyst who spoke on condition of anonymity.
The peso closed at P44.12 on Wednesday, shedding 25 centavos from P44.87 in previous trading. Wednesday’s level was the weakest the peso has traded since May 8, when it closed at P44.19.
Bank of the Philippine Islands economist Emilio Neri Jr. said most of the local market participants on Wednesday were expecting the FOMC to lean toward a hawkish position when the two-day meeting in Washington ends today.
The FOMC is also largely expected to taper its asset purchase program by a further $10 billion to a monthly $35 billion.
Neri also cited investors’ anticipation of the latest monetary policy action by the Monetary Board of the Bangko Sentral ng Pilipinas (BSP), which is set to meet today (Thursday). Jonathan Ravelas, chief market strategist of Banco De Oro, said that the market is also taking into consideration the escalating tension in the Middle East.
Ravelas said that the peso breaching the P44 resistance level could be attributed to the risk aversion move of the market because of the Middle East woes.
Tensions are high particularly in Iraq because of the conflict between the Shiite and Sunni Muslims.