Peso sinks to fresh 18-month low

The Philippine depreciated further against the greenback on Thursday to hit its worst showing in over 18 months, as US Treasury yields rose to the highest levels in a month.

The local unit closed at P58.635:$1, weakening by 21.5 centavos from its P58.42:$1 finish on Wednesday. This is the weakest performance of the peso since November 3, 2022’s close of P58.8:$1.

This comes as the US 10-year Treasury yield hit a four-week high, while the two-year note yield also increased.

“Upside moves today after US yields continued to rise overnight, PHP weakened along with regional currencies,” Security Bank Corp. chief economist Robert Dan Roces said in a mobile message.

“Dollars strengthened across with higher treasury yields and recent hawkish Fed speak. Market a bit on the edge with sticky inflation potentially indicating higher rates for longer. US GDP data tonight will provide direction,” he added.

This comes as Federal Reserve chair Jerome Powell earlier signaled that there may be a delay in policy rate cuts, as inflation in the United States has been sticky.

Locally, BSP governor Eli Remolona Jr. said the central bank is now less hawkish, as he hinted of a possible rate cut as early as August.

The central bank earlier this week said the recent weakness of the Philippine peso is only temporary, as the greenback’s strength is driven by overseas developments such as the stance of the Federal Reserve.

“I think this is only temporary and eventually, once things clear up, it will be the fundamental that will determine the level of exchange rate,” BSP senior assistant governor Iluminada Sicat said on Monday.

Roces was mirrored by Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort, who said that along with the higher US Treasury yields, the peso was also affected by the decline in the local equities market.

“The peso also lower after the recent declines in the local stock market, PSEi, to new 5.5-month lows or since December 13, 2023,” he said in a separate mobile message.

“Going forward, the peso’s performance would partly be a function of intervention/defense as consistently seen over the past 1.5 years,” he added.

This comes as the local stock barometer PSEi lost 39.66 points or 0.62% to 6,371.75 at the closing bell. The broader All Shares index shed 26.17 points or 0.76% to 3,425.57.

More than 666.587 million shares, valued at P5.987 billion, changed hands. Decliners led advancers, 132 to 57, while 52 issues were unchanged.

For his part, Regina Capital Development Corp. head of sales Luis Limlingan attributed the PSEi decline to the successive sell-off ahead of the MSCI rebalance, and the weak US Treasury action.

“The odds for the Fed to raise rates currently are quite low, but not completely off the table. In any case, the Fed is said to need much evidence before becoming confident to start easing,” he said separately. — RSJ, GMA Integrated News