Peso on brink of record-low 63:$1 level

MANILA, Philippines — The peso sank to a fresh record low against the dollar yesterday as expectations of an interest rate hike in the United States fueled demand for the greenback, bringing the local currency closer to the 63-per-dollar level.

Data from the Bankers Association of the Philippines showed the peso closed at 62.86 to $1 yesterday, weakening by 18 centavos from its previous record low of 62.68 on Friday.

The currency opened at 62.75, its strongest level during the session, before touching an all-time intraday low of 62.875 to $1.

Trading volume declined by 14.9 percent to $969.22 million from $1.14 billion on Friday.

A trader said the latest US inflation report reinforced expectations that the US Federal Reserve would raise interest rates.

Higher US rates can make dollar investments more attractive, supporting demand for the currency.

“The peso reached new lows after the recent August US inflation data solidified views of a Fed rate hike,” the trader said.

US consumer prices rose by 0.4 percent in August from the previous month, faster than July’s 0.1-percent increase, while annual inflation held at 3.4 percent.

Gasoline prices climbed by 3.9 percent during the month, accounting for more than a third of the overall monthly increase, according to the US Bureau of Labor Statistics.

“The peso remains under pressure from a strong dollar, elevated oil prices and continued local demand for dollars,” a second trader said.

The currency’s closing level left it just 14 centavos away from 63 to $1.

John Paolo Rivera, senior research fellow at the Philippine Institute for Development Studies, said external factors continued to drive the peso’s weakness, with oil prices above $100 per barrel amid renewed Middle East tensions and expectations of tighter US monetary policy supporting the dollar.

“These are particularly significant for the Philippines as an oil importer, since higher oil prices increase our dollar requirements and import bill,” Rivera said.

Rivera expects the peso to remain volatile and under pressure in the near term.

He said the main concern is whether its decline becomes persistent and disorderly enough to add to inflation, rather than the record low itself.

Another trader is expecting the Bangko Sentral ng Pilipinas (BSP) to closely monitor any abrupt or disorderly currency movement as the peso approaches that level.

“At these levels, the BSP is likely to be increasingly watchful of any disorderly move, so the bigger question is whether 63 becomes a new trading range or simply another level the market tests,” the trader said.

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