The Philippine peso dropped to its lowest level in almost 20 months by the end of a volatile trading week, following a regional decline as the stronger US dollar continued to impact emerging market currencies. The local unit closed at 58.8 against the greenback on Friday, two centavos weaker than its previous finish. This marks the peso’s weakest performance since October 24, 2022, when it closed at 58.87 per dollar. The peso is now just a few centavos away from its record-low of 59 in late 2022.
Robert Dan Roces, chief economist at Security Bank, attributed the peso’s decline to a regional downturn influenced by China’s central bank indicating a more relaxed stance on the yuan. The possibility of the yuan weakening against the dollar sparked speculation and dampened sentiment in regional foreign exchange markets, leading to a bearish outlook for currencies like the peso.
The Philippine currency had been trading at 19-month lows throughout June and had fallen more than 5 percent so far this year. Market observers cited hawkish signals from the US Federal Reserve and dovish remarks from some Bangko Sentral ng Pilipinas (BSP) officials as factors affecting the peso’s volatility. BSP Governor Eli Remolona Jr. suggested the central bank might start easing its monetary policy settings in August to address economic conditions.
Some analysts believe that the BSP’s prospective rate cuts, before the Fed’s actions, could further weaken the peso due to decreased demand. Concerns were also raised about the BSP potentially cutting rates ahead of the Fed, which may affect capital inflows and make local yields less appealing.
Despite the peso’s weakness, Remolona assured the public that the BSP has sufficient reserves to support the currency. John Paolo Rivera, president and chief economist at Oikonomia Advisory and Research Inc., expressed confidence in the central bank’s ability to defend the peso amidst the challenging economic environment.
