The Philippine peso surged to its strongest point in nearly eight months as analysts forecasted that the increasing yield gap against the U.S. will attract foreign investors.
The peso rose 0.3 percent to trade at 43.395 per dollar in Manila, the highest point since November 11. The currency’s one-month implied volatility, which measures the expected swings in the exchange rate used to assign price to options, advanced 0.12 percentage point or 12 basis points, to 4.23 percent.
The 10-year U.S. yields plunged by the steepest margin in a week on Monday on speculation the Federal Reserve will retain the all-time low interest rates in order to boost economic growth. The Fed is expected to release the minutes of the meeting held on June 17-18 on Wednesday. The Bangko Sentral ng Pilipinas is expected to review its policy on June 31, after earlier hiking the interest rates on special-deposit accounts and maintaining the benchmark rates on June 19.
“Wider interest-rate differentials and expectations that the BSP is in a tightening cycle ahead of the U.S. have boosted the peso,” Joey Cuyegkeng, a Manila-based economist at ING Groep NV told Bloomberg.
The difference in yields between the Philippine’s 10-year debt and U.S. Treasuries has increased 78 basis points in 2014 to 155 on Tuesday. The yield on 4.625 percent Philippine government bonds that mature in July 2017 surged 10 basis points to 3.18 percent.
Philippine’s inflation fell to 4.4 percent in June, compared to 4.5 percent in May, which was the quickest since 2011. The increase in inflation has surpassed the key interest rate set at 3.5 percent since last December. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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