Peso returns to P59:$1 level on weak data, Fed hike concerns

THE PESO retreated on Monday, returning to the P59-per-dollar level, as the Philippines’ reserves and foreign direct investments continued to decline and on expectations of continued monetary tightening by the US Federal Reserve following a strong US jobs report.

The local unit closed at P59 versus the dollar on Monday, losing eight centavos from its P58.92 finish on Friday, data from the Bankers Association of the Philippines’ website showed. It also matched the record low close logged on Oct. 3.

Year to date, the local unit has weakened by 15.7% or P8 from its P51-per-dollar finish on Dec. 31, 2021.

The peso opened Monday’s session weaker than its Friday finish at P58.98 against the dollar. Its intraday best was at P58.95, while its weakest showing was at its close of P59 versus the greenback.

Dollars exchanged went down to $400 million on Monday from $483.35 million on Friday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the peso’s weakening to the decline in the country’s gross international reserves (GIR).

Data from the Bangko Sentral ng Pilipinas (BSP) on Friday evening showed GIR stood at $95.01 billion as of end-September, 2.4% lower from the $97.44 billion as of end-August.

The end-September level was 10.7% lower from the $106.5 billion recorded a year ago, and marked the seventh consecutive month of decline since February. It was also the lowest since the $93.46 billion in gross reserves seen in June 2020.

Lower foreign direct investments in July also affected market sentiment, Mr. Ricafort said.

Data released by the central bank on Monday showed FDI net inflows declined by 64.4% to $460 million in July from $1.29 billion a year earlier.

This was the lowest monthly FDI inflow recorded since the $455 million seen in May 2021. Month on month, FDI net inflows dropped by 2.3% from $471 million in June.

The peso was also weaker as stronger US jobs data supported another aggressive hike from the Fed, which could tip the world’s largest economy into a recession, Mr. Ricafort added.

MUFG Bank Currency Analyst Sophia Ng also said in an e-mail note that the lower-than-expected unemployment rate in September reinforced market expectations of the Fed hiking borrowing costs by another 125 basis points (bps) this year.

The US Labor department on Friday reported that nonfarm payrolls increased by 263,000 jobs in September.

The release of September US consumer price index (CPI) data on Oct. 13 will also affect market sentiment and will be the main trading driver for this week, Ms. Ng said.

“While headline CPI is expected to decelerate, core CPI is expected to continue to accelerate to 6.5% year on year in September from August’s 6.3% year on year, based on Bloomberg consensus,” she said. 

“This will further reinforce market expectations of Fed policy tightening, on top of ongoing hawkish rhetoric by the Fed, which will lend support to the dollar,” Ms. Ng added.

The Fed has raised key rates by 300 bps since March, and policy makers have said further hikes may be needed to rein in stubbornly high inflation.

Meanwhile, BSP Governor Felipe M. Medalla last week said the central bank may need to hike rates further to anchor inflation expectations as the Fed is expected to remain aggressive, which will put pressure on the peso and affect prices.

The BSP has raised borrowing costs by 225 bps so far since May.

For Tuesday, Mr. Ricafort expects the peso to move between P58.85 and P59 against the dollar. — Keisha B. Ta-asan