peso down
The Philippine peso dropped further to Php53.535 vs the $1 on Wednesday (June 15, 2022) against the US dollar. Image Credit: Gulf News

Manila: The Philippine peso dropped further against the US dollar to Php53.535 at the close of forex trading day on Wednesday (June 15) as investors waited for the US Federal Reserve’s policy rate decision— widely expected to be a hike.

The market’s current wait-and-see stance led the peso further into negative territory, even as Philippines stocks dropped Wednesday.

Php547.71 more for every $100

That means that as of today (June 15), an overseas Filipino worker gets Php5,353.50 for every $100 remitted home — versus Php4,805.79 a year ago (June 15, 2021) — an increase of Php547.71.

It is the weakest point for the peso since October 31, 2018. On Wedensday, the peso opened at 53.3 and traded between 53.3 and 53.47, posting an intra-day average of 53.37.

Volume reached $1.164 billion, slightly down from than the previous day’s $1.167 billion.

Peso unloved at the moment

It’s not easy to make a quick case for why the peso is so unloved at the moment — as the dollar has been up against the world’s major currencies.

The Philippines growth has been one of the most dynamic in the East Asia Pacific region (average of 6.4% between 2010-2019, from 4.5% between 2000-2009). 

While growth turned negative during the tough COVID months, the Philippine economy made a rebound, rising by 8.3% in the first quarter of 2022 from a year earlier, led by consumption.

Despite this, the peso’s slide may be set to deepen as traders test the tolerance levels of the global market in the midst of an expected new round of policy tightening — interest rate increase — by the US Federal Reserve.

What happens when the US Fed raises interest rates?
Interest rates are a big part of economic activity, as it represents the cost of borrowing. So when the Fed (or any central bank) raises the target rate, money becomes more expensive to borrow.

While banks pay more to borrow money, they charge individuals and businesses even higher interest as well. This is one reason why mortgage rates rise accordingly.

As a reserve currency for international trade and finance, the US dollar's relative value depends on the economic activity and outlook of the US.

US Treasury yields have risen in recent months: The US 10-year Treasury yield rose to 3.40 percent, a new 11-year high.  

The US dollar remains the bedrock of the global economy.

3.4%

Yield of 10-year US Treasury, a new 11-year high.  

Now, most analysts expect a more aggressive hike in the Fed rates, whose main motive is to stem high inflation rates in the US, which unexpectedly accelerated to 8.6% last month (May 2022).

Given these factors, analysts forecasts the peso’s next resistance level at around 53.50 against the dollar. 

Stocks down

Meanwhile, the Philippines Stock Exchange Index also closed the day at its lowest in more than 10 months at 7,270.23 points on Wednesday.