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MANILA, Philippines—The peso once again broke the psychological barrier of 50 to 1 US dollar, closing at its lowest level in two months amid hawkish comments by the US Federal Reserve (Fed).
The peso lost 19 centavos to close at 50.1 to $1 on Tuesday, June 20, from Monday’s 49.91 to $1. It opened weaker at 49.99 and hit 49.97 before losing to close at an intra-day low of 50.1.
Tuesday’s close represents the lowest level the peso has been at since it closed at 50.08 to $1 on April 7 this year.
In addition, trading volume was heavy at $1.15 billion Tuesday from $572.6 million on Monday in a sign that Bangko Sentral ng Pilipinas (BSP) entered the market.
Outgoing BSP Governor Amando Tetangco Jr attributed the weakness to the US Fed’s hawkish stance since raising its interest rate last week.
“It is a reaction to external developments particularly the hawkish statements of Fed officials overnight. So all regional currencies have responded the same way. We are just moving with other regional currencies,” Tetangco said on Tuesday.
The US Fed raised interest rates by another 25 basis points on June 15 while maintaining its outlook for one more hike for this year despite weak inflation in the US economy. (READ: How a Fed rate hike impacts the Philippine economy)
This was the second time this year that the Federal Reserve raised rates as part of its shift to tighten monetary policy.
Watching inflation
Security Bank said in its Daily Market Edge report that the US dollar resumed its ascent after New York Federal Reserve president William Dudley reiterated the hawkish stance of US Fed chair Janet Yellen last week.
Dudley said that while US inflation is low, it should rebound alongside wages as the labor market continues to improve.
His comments follow data released by the US Labor Department last week that showed that US core inflation fell to 1.7% in May from 2.3% in January.
“We still prefer to own US dollar as we anticipate a hawkish front from the Fed speakers this week,” Security Bank said.
Tetangco meanwhile reiterated that the central bank maintains a market-determined rate and does not support a certain trend in the foreign exchange rate.
“The BSP policy is [keeping a flexible exchange rate]. We want to minimize sharp fluctuation and volatility,” he said. – Rappler.com
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