The peso tumbled to a one-month low against the US dollar Wednesday, pulled down by the recent hawkish policy signals from the US Federal Reserve and the latest geopolitical tensions between China and Taiwan.
Data showed the peso shed P0.29, or 0.16 percent, Wednesday to close at 55.22 from 54.93 on Tuesday. It was the local currency’s weakest level since it settled at 55.24 on March 9, 2023. Total volume turnover reached $935.98 million, lower than $1.143 billion a day earlier.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the currency’s decline was “partly due to increased market expectations, around [a] 75-percent chance, for another +0.25 Fed rate hike on May 3, 2023.”
He said the recent signals from monetary authorities of a possible pause in local policy rates, if inflation would ease further, contributed to the peso’s decline. Inflation in March decelerated to 7.6 percent from 8.6 percent in February.
Ricafort also cited the rising global oil prices now at 2.5-month highs, after the surprise OPEC+ oil production cut of more than 1 million barrels a day a week ago and the geopolitical risks in view of the recent China military exercises near Taiwan as other factors for the weakness of the peso.
The peso fell to an all-time low of 59 against the greenback in October 2022 amid expectations that the Fed would further raise interest rates.
Previous hints from monetary authorities of continued support, plus the seasonal inflows of remittances in the fourth quarter, caused a downward trend for the peso-dollar exchange rate in the succeeding months.
The peso closed 2022 at 55.755 a dollar, losing P4.756 compared to 50.999 on the last trading day of 2021.
The BSP raised the overnight borrowing rate by 25 basis points on March 23 to 6.25 percent to rein in inflation, which is considered one of the stickiest in the region.