Peso slumps to new 10-year low as Fed officials talk up rate hike
By Janine Marie D. Soliman
Posted on March 02, 2017
http://www.bworldonline.com/content.php?section=Finance& title=Peso-slumps-to-new-10- year-low-as-Fed-officials- talk-up-rate-hike&id=141531 THE PESO slumped against the dollar on Wednesday, hitting another 10-year low, amid a jittery market due to heightened chances of an interest rate hike by the US Federal Reserve this month and on the back of worries of political noise at home.
The local unit dropped to P50.28 versus the greenback yesterday, its weakest close since the peso closed at P50.32-to-the-dollar last Sept. 26, 2006.Wednesday’s close was also seven centavos weaker than the previous session’s finish of P50.21 per dollar.
The peso dropped sharply as the session opened to P50.32 a dollar, which was its worst showing for the day. Its best showing was at P50.235 against the greenback.
Dollars traded on Wednesday climbed to $429.8 million from the $389.8 million seen the previous session.
A trader said in a phone interview yesterday that the dollar continued to strengthen across the board as markets turned cautious due to a higher probability that the Fed would move to lift borrowing costs this month.
“We’re hearing very hawkish comments from members of the Fed and we’re seeing now that the chances of a Fed rate hike happening in March are now at 80% or more so there will definitely be a pressure for the dollar to go higher against the peso,” the trader said.
Reuters reported that a number of Fed officials hinted of higher chances the US central bank will most likely decide to increase interest rates during their March 13-14 meeting.
President of the San Francisco Fed John Williams said he sees there is no need to further delay increasing interest rates because as US economy is now at full employment, there are higher risks of inflation spiking up and on the back of potential tax cuts from US President Donald J. Trump. New York Fed President William Dudley said the case for tightening monetary policy “has become a lot more compelling.”
The trader said the local currency could even sink to as low as P50.355 per dollar within the week as the dollar may continue to gain strength.“That’s why we’re seeing that there seems to be poor sentiment in the Philippines…then couple that with possible rate hikes in the US — these are factors pointing towards more weakness for the peso against the dollar.”
Meanwhile, asked if Mr. Trump’s speech had an effect on yesterday’s foreign exchange trading, the trader said, “I think it was still taken positively by the market even though Trump didn’t give any particular details on his fiscal plans.”
Mr. Trump speech on Tuesday night still lacked concrete details regarding his fiscal and economic reforms for the United States, disappointing investors.
Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr., for his part, said in a text message to reporters: “The Trump speech as I understand didn’t 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. The market may turn its focus again on the Fed and expectations of its next moves. The peso and other EME (emerging market economy) currencies would likely trade in a relatively narrow band until more clarity comes from US policy makers.”
For today, both traders said the peso may move within P50.20-P50.35 versus dollar.