The Philippine peso fell back into the P50:$1 territory on Tuesday in line with the other regional currencies’ reaction to a US Federal Reserve official’s remark about a rebound in weak inflation data.
“It’s reacting to external developments, particularly the statement of a Fed official overnight,” outgoing Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters on Tuesday.
The night before, New York Fed President Willian Dudley aligned himself with Fed Chair Janet Yellen in declaring his expectation that a tight labor market will eventually trigger a rebound in the unexpectedly weak inflation data, and said he is confident the US expansion has further to go, while cautioning of risks in not raising interest rates.
The local currency closed Tuesday’s trade at P50.10 against the dollar, its weakest in more than two months.
The peso softened by 19 centavos from P49.91:$1 on Monday. It opened Tuesday at P49.99 to $1, before trading between P49.97 and P50.10 and lodged its weakest closing since it touched P50.17:$1 on April 6, 2017.
“All regional currencies have responded the same way. We’re just moving along with regional currencies right now,” Tetangco said.
The BSP is keeping a market-determined exchange rate with scope to participate to smooth out any sharp swings, he explained.
“We don’t go against the fundamental trend. We just want to minimize the volatility, the sharp fluctuations. So we are sticking to that policy,” he said.
Sharing Tetangco’s view, Bank of the Philippine Islands Vice President and lead economist Emilio Neri Jr. said, “Most Asian currencies fell versus the USD as US market rates rose sharply following the hawkish comments from FOMC [Federal Open Market Committee] member Dudley in his speech last night.”
The peso first touched the P50:$1 level on November 24 last year as bets on interest rate hikes in the US—which actually happened in December —favored the dollar. It depreciated by 5.35 percent against the US dollar last year.