Philippine peso bills inside a money changer in metro Manila
A worker shows Philippine peso bills inside a money changer in metro Manila, Philippines. File photo taken on August 14, 2017. Image Credit: Reuters

Manila: In a surprising downturn, the exchange rate between the Philippine peso and the US dollar dipped below the crucial 55.40 mark — tracking the seasonal weakness of the greenback, and the peso's gain.

The Philippines typically marks a more substantial inbound dollar remittances during this time of the year, driving consumer spending.

The peso concluded the day at 55.347 on Monday (December 11, 2023) — higher than the average rate for December 55.684 vs $1 in December 2022.

Peso set to gain further?

As the holiday season unfolds, analysts predict a further rise in the Philippine currency, potentially reaching levels as high as 54 against the US dollar, according to a Bloomberg report.

December has consistently witnessed the largest inflows of remittances from overseas Filipino workers (OFWs), making it a pivotal month for the country's currency dynamics. The connection between the Philippine peso and remittances is a significant factor contributing to this projected upswing.

This optimistic forecast is attributed to the annual surge in holiday spending, coupled with the robust wave of remittances

So far, the Philippine peso has outperformed its Asian peers this year with a seasonal pick-up in overseas remittances ahead of Christmas likely extending the gains.

Remittances form a key pillar of the nation’s economy — which typically receives the highest cash transfers in the last month of the year as workers send money home for holiday spending.

Historical data shows that in the last 10 years, remittance inflows have helped strengthen the local currency in seven out of three Decembers, numbers compiled by Bloomberg show.

The US dollar's weakening vs the peso started weeks ago, peaking 56.961 on September 29, 2023, before the slide started.

Also in November, forex market commenced with a correction, reminiscent of the trend observed in November 2022.

BSP Bangko Sentral ng Pilipinas (Central Bank of the Philippines)
The Bangko Sentral ng Pilipinas (Central Bank of the Philippines) reported November 2023's local inflation holding steady at 4.1 per cent (with a base of 100 in 2028), a key factor in the central monetary authority's policy rate decisions. File photo shows a logo of the BSP seen at their headquarters in Manila, Philippines Image Credit: Reuters

The peso's strength unfolds against the backdrop of a hawkish policy by the country’s central monetary authority and the historically unfavourable performance of the US currency during this time of the year.

It also serves as a testament to BSP Governor Eli Remolona's vision to steer the Philippine economy through challenging waters, especially to keep inflation in check.

Analysts also point out that the rise in consumer spending during the festive season and the positive impact on the country's economic indicators further supports the thesis of a potential appreciation of the peso against the greenback.

Nonetheless, this highlights the fluidity of currency markets, susceptible to diverse external influences, including global economic conditions, geopolitical events, and monetary policies.

Despite the positive outlook for the anticipated strengthening of the peso, investors and market observers maintain a watchful stance, acknowledging the inherent volatility inherent in currency markets.

With December now unfolding, attention is keenly focused on the performance of the Philippine peso, and analysts are diligently observing the intricate interplay of factors that shape its value against the US dollar.

Philippine stocks flat

Meanwhile, the local bourse closed almost flat on Monday, with benchmark Philippine Stock Exchange index (PSEi) ending the day slipping by 0.10 per cent, or 6.48 points, to the 6,228.29 level.

The broader All Shares also slipped by 0.06 percent, or 1.93 points, to 3,327.665 points.

The decline in Philippine stocks was attributed in part to profit-taking by investors following three consecutive days of market rally.

Tracking the PSEi, this day’s losers include Financials (down 1.95 per cent), Mining and Oil (down 1 per cent), Industrial (down 0.28 per cent), Services (down 0.24 per cent). Two sub-indices posted gain — Holding Firms (up 0.75 per cent to 5,956.61) and Property (up 0.66 per cent to 2,762.64).