Peso strengthens as sentiment improves

THE PESO strengthened against the dollar on Wednesday, Feb. 21, as the central bank was suspected to continue intervening amid a big bond sell-off by the US Treasury.

The local currency closed Wednesday’s session at P52.10 against the greenback, 14 centavos stronger than its P52.24-per-dollar finish last Tuesday.

The peso traded stronger the whole day, opening the session at P52.165 per dollar. Its intraday low stood at P52.21, while its best showing was at P52.06 against the US currency.

Dollars traded on Wednesday slipped to $965.95 million from the $977.8 million logged the previous session.

“The BSP (Bangko Sentral ng Pilipinas) was still intervening that’s why the dollar-peso [remained stronger] throughout the day,” a trader said in a phone interview on Wednesday.

On Tuesday, traders said the central bank was likely intervening in the foreign exchange trading, lifting the peso up against the greenback following sharp declines.

As the country’s monetary authority, the BSP sometimes intervenes in trading to prevent any sharp swings that may cause the local currency to appreciate or depreciate.

“Otherwise, it traded within the range. [There’s just a cap] on the topside,” the trader added.

Meanwhile, another trader attributed the peso’s slight uptick to the “news of a massive bond sell-off by the US Treasury,” which caused the dollar to weaken.

The US government seeks to sell $258 billion worth of debt this week.

The US Treasury Department began ramping up its debt issuance earlier this month to fund the expected growth in borrowing tied to the biggest tax overhaul in 30 years and a two-year federal spending package.

UnionBank of the Philippines chief economist Ruben Carlo O. Asuncion, on the other hand, saw the stronger peso as a correction following the sharp decline of the local currency, which last Monday hit a near twelve-year low. The peso’s steep drop that day was triggered by the announcement of the BSP that it will cut the bank’s reserve requirement ratio by a percentage point, which will free more money into the financial system.

“The peso strengthened probably on the positive sentiment on the recent reserve requirement rate cut,” Mr. Asuncion said in a text message.

The Bankers Association of the Philippines earlier said it welcomed the central bank’s decision to cut its reserve requirement, saying that “borrowers will have access to more sources of funds and more efficient cost of borrowing that is expected to propel more economic activity in the country.”

For Thursday, Feb. 22, the first trader expects the peso to move between P52 to P52.30, while Mr. Asuncion gave a wider forecast range of P51.90 to P52.20.

The second trader expects the pair to trade between P52 and P52.40 “as investors look forward to possible hawkish cues from the FOMC (Federal Open Market Committee) minutes” which were due to be released yesterday night.

Meanwhile, most Asian currencies edged lower on Wednesday as the dollar was bolstered by rising US Treasury yields and optimism ahead of Federal Reserve’s last policy meeting minutes.

The dollar index was up 0.2% at 89.686. It is up 1.6% from Friday’s three-year low of 88.251.

Andy Ji, a strategist for Commonwealth Bank of Australia in Singapore, said rising US Treasury yields will put pressure on Asian currencies in coming months.

“Market is looking at the threshold of 3 percent in 10-year US Treasury yield. If it reaches that level, there is going to be a large risk reduction in the markets,” Ji said.

The US 10-year Treasury yields were at 2.8877% in Asian hours, hovering near a four-year peak. The rise in yields came as investors made room for this week’s deluge of $258 billion of government debt supply. — Karl Angelo N. Vidal with Reuters