Peso drops to 8-month low

MANILA, Philippines - The peso neared the 42 to a dollar level yesterday, closing to an eight-month low against the greenback as investors continued to flock to safety amid concerns the US will wind up its stimulus measures soon.

The local unit closed at 41.95 against the dollar, giving up 33.5 centavos from the previous day’s close of 41.615. Dollars traded reached $879.9 million, higher than $659.685 million.

This was the peso’s weakest close against the dollar since Sept. 26, 2012 when it hit 42.02 to $1.

 â€œThis marks a continuation of the strength of the dollar sentiment,” said Rafael Algarra, executive vice president at Security Bank Corp., in a phone interview.

 â€œIt was really more of the strength of the dollar and not the weakness of the peso,” he added.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said the peso’s weakness has been driven largely by “the improving fundamentals of the US economy.”

Financial markets have been rattled in recent days by concerns the US Federal Reserve will soon stop its quantitative easing (QE) measures amid signs the world’s largest economy is gaining strength.

Last Thursday, the peso slumped by more than 50 centavos to close at 41.69 to $1, a day after minutes of the meeting of the Federal Open Market Committee — the Fed’s policymaking body — showed some members favoring “downward” adjustment in bond purchases.

QE is the process of the central bank buying government bonds in a bid to flood the economy with money and push interest rates lower. In the US, a total of $85 billion worth of securities are being bought every month.

Ravelas, who projects the peso would break the 42 to $1 level this year, said the “correction” yesterday in the foreign exchange market would likely persist. “A correction is really underway,” he said.

 â€œThe recent movement has closed the window for a move towards 39.50 to 40 levels (versus the dollar) and has opened the window towards 42.30 to 43,” Ravelas pointed out.

For his part, Algarra said good growth data coming from the release of the national income accounts on Thursday would likely help the peso bounce back. Market consensus was for a first-quarter uptick of six percent.

 â€œIt should support the peso in the short-term. For me, the peso’s weakness has been overdone already,” he explained.

As of yesterday, the peso, the second best-performing Asian currency last year, has already lost 2.19 percent against the greenback since it ended 2012 at 41.05.