The peso hit its weakest level since February 6 at P45 to $1 as investors took positions in the US currency ahead of any firming of dollar interest rates following reports that the United States Federal Reserve will pursue its tapering policy.
The local currency closed at P45.10 on Thursday, shedding 25 centavos from P44.85 in previous trading. On February 6 the peso closed at P45.18 to a dollar.
“The markets reacted to the hint of a Fed hike sooner than earlier predicted,” said Bank of the Philippine Islands associate economist Nicholas Antonio Mapa.
Mapa was referring to the US Federal Open Market Committee’s announcement of a fresh $10 billion cut to the Fed’s stimulus program, keeping up the taper stance it assumed in December. Tapering refers to the Fed’s winding down of its program of buying Treasuries and mortgage-backed securities to stimulate economic growth.
Fed chief Janet Yellen defended the continued drawdown of the financial market stimulus as the FOMC sees the economy has “sufficient underlying strength.”
Rafael Supangco, Angping and Associates Securities Inc. head of Research, believes the Fed’s announcement of its tapering plan prompted investors to pull back from emerging markets, including the Philippines.
Supangco said investors were “probably going to frothier markets such as the US.”