Philippine peso slides to three-year low, may weaken further

The Philippine peso has weakened beyond a key level of support to a three-year low, paving the way for further declines.

The currency slid past support around 52.50 per dollar that had held since the middle of March as it tumbled as much as 0.5 per cent to 52.76, the weakest since March 2019. The peso came back under pressure on Thursday as higher Treasury yields boosted the dollar, and global risk sentiment worsened after policy makers warned of quickening global inflation.

The Philippine central bank helped bolster the peso last month by raising its benchmark interest rate for the first time since 2018, and signaling another increase when it meets this month. Still, that hasn’t been enough to offset a hawkish Federal Reserve, which is contemplating stepping up its pace of rate increases to 50 basis points a month.

The peso is also being weighed down by a widening Philippine trade deficit as the reopening of the economy from its Covid restrictions boosts demand for imports. The shortfall expanded to $5 billion in March, the widest level in three months.

The peso looks relatively expensive and that suggests the Philippine central bank will probably allow for some catch up with regional currency weakness, analysts at Barclays Plc wrote in a research note published on Wednesday. Investors should go long one-month USD/PHP non-deliverable forwards, they said.