Peso back in P58:$1 territory

THE peso fell to its lowest in nearly three months on Friday, dropping back to the P58:$1 level as the dollar strengthened on expectations of slower Federal Reserve (Fed) rate cuts and the possibility of a second Trump presidency.

Trading resumed after two days of storm-halted foreign exchange operations, and the currency closed out the week at P58.32 against the greenback, its lowest since August 1’s P58.333:$1.

It opened at P57.85:$1 and ranged from P57.8 to P58.38, with volume reaching P1.691 billion.

The peso still has some way to go before reaching this year’s low of P58.80 against the dollar, recorded on June 21, and the record low of P59:$1 hit several times in October 2022.

The drop earlier this year came amid a strong dollar and as the Bangko Sentral ng Pilipinas (BSP) indicated that it could start cutting key interest rates ahead of the Fed, seen as making Philippine assets less attractive.

The 2022 decline, meanwhile, was attributed to the BSP’s not raising interest rates aggressively enough as the Fed, which also had the same effect.

BSP officials insisted that acting ahead of the Fed was supported by data, and when the policymaking Monetary Board finally started easing in August, the peso steadily recovered and even returned to the P55:$1 level last month.

The Fed, which followed suit in September with a jumbo-sized cut, was initially expected to order more reductions before the year ended.

Latest US economic data, however, have indicated that the pace could slow, and a potential return to the White House for former president Donald Trump has not helped emerging market (EM) currencies.

The peso and the baht led regional declines on Friday, and the rupiah, Singapore dollar, ringgit and won were also down in afternoon trade as the dollar gained against a basket of major currencies.

“As the US elections approach and Trump trades are being implemented, the dollar is likely to remain on the front foot and US rates likely to remain elevated, creating a somewhat painful backdrop for EM assets,” analysts at Barclays wrote.

Noel Reyes, chief investment officer for the Trust and Asset Management Group at Security Bank Corp., said the regional declines were due to “resilient firm economic data in the US and the Trump win factor being priced in.”

“Pace of the Fed cuts will be slower given the data while a Trump presidency will be inflationary given his bias for tax cuts and tariff increases,” he added.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, meanwhile, said the weakness was partly due to increased dollar demand as reserve requirement ratio cuts announced by the BSP last month took effect on Friday.

He also said that the peso’s decline was in response to signals of fewer Fed rate cuts and “amid the potential impact of the upcoming US election and recent tensions in the Middle East.”

The peso’s weakness has also been blamed for a stock market decline, but on Friday the benchmark Philippine Stock Exchange index rebounded back to the 7,300 level, rising 0.42 percent, or 30.44 points, to 7,314.23.

The broader All Shares added 9.88 points, or 0.25 percent, to 4,017.27.

Philstocks Financial Inc. research manager Japhet Tantiangco said “the bourse bounced back as investors hunted for bargains.”

“Optimistic expectations toward Q3 (third quarter) corporate results gave sentiment a boost,” he added.

“Net foreign buying amounting to P7.61 million also helped in the market’s rise.”

The day’s trading, however, was said to have remained “tepid” as net value turnover of P3.63 billion was below the year-to-date average of P5.18 billion.

All but two sector indices closed Friday in the green, with financials up the most by 0.97 percent. The property and industrial sectors, on the other hand, slipped by 0.67 and 0.17 percent, respectively.

Gainers outnumbered decliners, 110 to 81, while 55 were unchanged.

WITH REPORTS FROM REUTERS AND EARL JOHN ALFARO