A currency trader from a local bank said investors are getting increasingly nervous about a US strike in Iraq following the speech delivered by US President George W. Bush urging the United Nations Security Council to take military action against Iraq for its failure to discard banned weapons.
"There’s a possibility that the peso could breach the 56 level because of the lingering concerns overseas. It might even hit P60," the currency trader said.
He said the impending war has discouraged sentiment further as the worries continue to linger in the market. "We just want this issue in Iraq to get over and done with soonest possible time, regardless if there will be a war or not," he said.
Analysts said the speech of Bush seemed to convince some investors that the US was headed closer to war, a development that would eliminate the uncertainty pressuring the market but also raises questions about the economic impact.
Another currency trader said exporters and families of overseas Filipino workers are expected to hold on to their dollars until there is greater clarity in Iraq.
The peso dropped to a fresh two-year low of P54.10 in early trading Friday but recovered slightly at the end of the session to close at 53.94.
Traders said the Bangko Sentral ng Pilipinas was lending heavy support to the peso preventing it from breaching the psychological barrier of P54. They said the BSP intervened through its usual conduits Chase Manhattan and Standard Chartered Bank.
Currency traders said much of the currency’s weakness stems from the increasing dollar requirements of importers like oil companies to finance unusually higher volumes of imports in preparation for the US-Iraq war.
Oil firms were required by the Department of Energy to increase their inventory as a contingency measures in case the US-Iraq conflict escalates.
As importers try to beef up inventory, they scramble for dollars that create a shortage in the spot market and tend to push down the peso’s value.
Aside from the US-Iraq issue that is forcing local importers to jack up their dollar holdings, the peso is also weighed down by concerns over the budget deficit. The International Monetary Fund said the budget deficit this year would likely hit P262.88 billion against the government’s target of P202 billion.
If a war does push through, it will affect overseas remittance, which is already being threatened by the delays in the final passage of the Anti-Money Laundering bill. About 1.3 million OFWs are based in the Middle East and they remitted around $8 billion dollars to the country last year.
Warnings from the military that the Philippines could be a target of terrorist if the US launches its attack is also weighing on market sentiments.