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Peso sinks to new low ahead of Fed minutes

by October 11, 2016 General

Posted on October 12, 2016

THE PESO extended its slide to hit a fresh seven-year low against the dollar yesterday amid a stronger dollar in general and investor cautiousness due to the US Federal Reserve’s possible interest rate hike by December.

The peso lost 16.5 centavos to close at P48.52 versus the greenback yesterday, sharply weaker from its previous finish at P48.355.

Yesterday’s close was the peso’s weakest performance since it closed at P48.62 a dollar on Sept. 4, 2009, and is its new low for the year.

The local currency was traded weaker against the dollar the entire session as it opened the day weaker at P48.500, with its strongest intraday level at just P48.45 while dropping to a low of P48.53 per dollar.

Two traders attributed the peso’s weakness to a stronger dollar in general as the market remained focus on increased chances of a Fed rate hike by December.

“The peso traded weaker because the dollar was stronger in general against other currencies, not only the peso,” a trader said in a phone interview.

“People are also focusing on the impending [Fed] rate hike by December,” the trader added.

Another trader said: “Market is very bullish on the dollar apparently… The FOMC’s (Federal Open Market Committee) minutes on Thursday would give further guidance as to what to expect next year. More or less the FOMC will give us a preview of what might happen by yearend.”

The Fed’s policy-making body FOMC will issue minutes of its September meeting tomorrow.

“On December there will be another FOMC meeting and we expect the Fed to increase key policy rates or overnight interest rates by 25 basis points (bps),” the trader said. “But everything is just pointing to a better US economy now.”

“The peso was affected by broad dollar strength as traders increased bets on a Fed rate hike this year. It was also weighed by corporate dollar demand and other outflows. Higher oil prices served to improve sentiment somewhat,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. told reporters in a text message when sought for comment.

“The BSP will continue to monitor FX (foreign exchange) market moves and stands ready to prevent sharp changes in the exchange rate.”

For today, the first trader expects the peso moving within P48.30 to P48.67 range while the second trader sees the local unit trading between P48.45 and P48.65 against the dollar.

Most emerging Asian currencies also slid on Tuesday with the Chinese yuan at another six-year low as the dollar stood tall on growing expectations that the US Federal Reserve will raise interest rates in December.

The yuan slumped as market speculation of depreciation grew after the central bank set a weaker guidance rate. South Korea’s won hit a near three-week trough, leading regional losses. Foreign investors sold Samsung Electronics Co.’s shares after the firm announced it would halt Galaxy Note 7 sales globally.

The Singapore dollar fell to its weakest in more than four months after a minister was on Monday quoted as saying the possibility of the trade-reliant economy experiencing “some quarters of negative growth” cannot be ruled out. Thailand’s baht fell to a near three-month low as most government bond prices slid.

The US dollar rose against a basket of major currencies with investors pricing in around a 70% chance that the Fed will raise rates in December, according to CME Group’s FedWatch program. — Janine Marie D. Soliman with Reuters