Peso slips to lowest in 11 years

THE PESO fell to a fresh 11-year low on Wednesday as markets turned bullish after reports US Republican senators were in favor of a hawkish candidate to take the top post in the US Federal Reserve Board.

The local unit closed at P51.77 against the greenback on Wednesday, 23 centavos weaker from the P51.54 finish in the previous session.

It was the peso’s lowest level since the P51.87-per-dollar recorded on July 25, 2006.

The local currency immediately slid to P51.63 as the market opened, which was its peak for the day before closing at its lowest point.

Volume of dollars surged to $773 million from the $551.2 million on Tuesday.

Traders said the US Fed’s planned December policy tightening – which would be the third this year – is seen to be on track, as they price in US President Donald J. Trump picking Stanford University economist John Taylor as his nominee to be the next Fed Board chairperson.

“The peso unexpectedly depreciated today, following news that John Taylor might succeed Janet Yellen as the next head of the US central bank,” Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines said in an e-mail yesterday.

He added the peso also weakened due to better-than-expected US economic data on services and manufacturing released yesterday.

Another trader interviewed over the phone said this was an extension of Tuesday’s dollar strength as investors are betting on stronger US gross domestic product (GDP) – which also affirms the December rate hike.

“Certainly we’re headed higher, especially after repeated attempts of testing above P51.60. So it feels like dollar strength, and even higher US Treasury yields. That’s helping the dollar.”

Sought to comment on the peso’s move, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said he remains comfortable on its current level, saying that it does not need a necessary policy action.

“This is part of the adjustment mechanism. Examine the alternative if we have to react to exchanges. So what are the tools of the BSP? You want us to jack up interest rate? That has a bigger economy-wide impact. So our interest rates are focused on inflation. So if (foreign exchange rates) are already beginning to influence inflation in a way that makes us breach our target, then that may warrant a response from the BSP… But I said we have other tools. We’ve got a big reserves that we use for tactical intervention,” Mr. Espenilla told reporters on the sidelines of the European Chamber of Commerce of the Philippines luncheon meeting.

The BSP chief said the peso “is allowed to move flexibly in line with global external and domestic shocks.”

“All the fears and uncertainties of the world are reflected in the day-to-day volatility of the exchange rate – we allow it to reflect that because that’s the reality at which the economy operates under,” he added.

Mr. Espenilla said the central bank engages in “tactical intervention” in the foreign exchange market to prevent “excessive” volatility.

Mr. Dumalagan sees the local pair trading between the P51.45 and P51.85 per dollar range in today’s session, while the trader sees a P51.60 to P52 range.

“There might be a bias in favor of the peso due to profit taking ahead of the ECB (European Central Bank) monetary policy meeting and the third-quarter US GDP growth report. News about Fed Yellen’s potential successor might continue to cause market volatility,” said Mr. Dumalagan.

Mr. Espenilla said he expects the peso “to be generally stable over a medium-term horizon.” – Elijah Joseph C. Tubayan