Philippines’ Peso Drops on Surging Demand for U.S. Dollar

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Philippines’ Peso Drops on Surging Demand for U.S. DollarThe Philippine peso plunged to its lowest level in one month as speculation over the timing of U.S. interest rates hike spurred demand for the greenback. This eroded the gains fuelled by the tighter monetary policy measures pursued by Bangko Sentral ng Pilipinas.

The peso plunged 0.6 percent in the week through today to 43.915 per dollar in Manila close. The currency had earlier fallen to 44.030, its lowest level since Aug. 8. Despite the central bank slashing its target rate twice, the peso has declined 0.4 percent since May 30.

“The BSP’s move was largely expected and shortly after the announcement traders sold the peso,” Jason Manalac, a Manila-based trader at Philippine Bank of Communications, told Bloomberg News. “From there, they continued to sell the peso on expectations that U.S. rates will rise.”

The peso’s one-month implied volatility, which measures the expected swings in the exchange rate used to set prices to options, surged 60 basis points this week to 5.66 percent. Yield on the 2.875 percent government notes that mature in May 2017 fell two basis points to 2.63 percent, bringing its total decline this week to five basis points.

Philippines’ central bank lifted its target borrowing rate to 4 percent on Thursday, up from 3.75 percent, in line with most analyst estimates. The central bank also hiked the special-deposit accounts rate to 2.5 percent, up from 2.25 percent.

Consumer inflation grew 4.9 percent in the year through August, matching July’s pace that was the quickest since October 2011. The central bank targets an inflation rate of 3 percent to 5 percent this year and 2 percent to 4 percent in 2015. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com