The Philippine peso weakened further against the US dollar on Wednesday, touching a new low in more than 10 years, as the probability of a March Fed hike increased.
The local currency closed 7 centavos weaker at P50.28:$1 on Wednesday. It was its weakest finish since settling at P50.32:$1 on September 26, 2006.
It opened at P50.32:$1 before trading between P50.23 and P50.32.
ING Bank Manila said Asian currencies, including the peso, reflected the higher likelihood of a United States Federal Reserve rate hike at its March 15 to 16 meeting.
“The chances of a Fed rate hike this month has increased to more than 50 percent from last week’s 40 percent,” said ING Bank’s senior economist Joey Cuyegkeng, reflecting on expectations of market participants.
Cuyegkeng noted the market took the latest address of President Donald Trump before the joint session of the US Congress as lacking in details about government deficit spending and tax reform.
“The reiteration of such intentions and objectives still resonated among investors but not as much as the higher likelihood of further tightening of monetary policy by mid-March,” he added.
BSP Governor Amando Tetangco Jr. said the Trump speech din not provide much in terms of details.
“The market will therefore still try to get a feel of how the stimulus will be funded and whether such moves will raise the US inflation path appreciably,” he said in a text message to reporters.
Tetangco said the market may focus again on the Fed and expectations of its next moves.
Emerging market currencies would likely trade in a relatively narrow band until more clarity comes from US policy makers, the BSP official noted.
Cuyegkeng expects the peso to stay range bound for now, trading between P50.10 and P50.40 as the market waits for additional cues from US Fed Chair Yellen when she give her assessment of the US economy on Friday.
The peso first touched the P50:$1 level on November 24 last year as bets on an interest rate hikes in the US, which actually happened in December, favored the dollar. It depreciated by 5.35 percent against the US dollar in 2016.