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Peso weakens amid volatility in markets

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THE PESO declined against the dollar on Thursday, February 8, amid continued volatility in global markets and as the Bangko Sentral ng Pilipinas (BSP) kept its policy rates steady.

The local currency ended Thursday’s session at P51.31 versus the greenback, 19 centavos weaker than the P51.12-per-dollar close on Wednesday.

The peso traded weaker the whole day as it opened at P51.23 against the US currency. Its intraday low stood at P51.40, while its best showing was at P51.18 versus the greenback.

Dollars traded declined to $896 million Thursday from the $1.03 billion that changed hands on Wednesday.

“The peso depreciated after the BSP kept its policy rates steady,” Guian Angelo S. Dumalagan, market economist of Land Bank of the Philippines, said in an e-mail on Thursday.

The central bank held fire at its policy review Thursday. Rates were kept at 3.5% for the overnight lending rate, 3% for the overnight reverse repurchase rate, and 2.5% for the overnight deposit rate.

Bets on BSP tweaking its benchmark interest rates by 25 basis points arose after the faster inflation print last month. These expectations drove the peso upwards for two days.

For a trader, meanwhile, the weaker peso against the dollar was on the back of the volatility in the bond and stock markets, as he saw “stronger dollar demand across the board” in the afternoon trading session.

“What we’ve been seeing is the move in interest rates as well as the volatility in the equity market, so [the dollar-peso has] been dictated by these huge moves,” the trader said over the phone.

“Now, the sentiment is that sometimes, there’s a risk-off mood and when that happens, we see flight to safety which is to buy dollars.”

Mr. Dumalagan added that the $300-billion spending deal in the US Senate, as well as the affirmation of San Francisco Fed President John C. Williams of gradually increasing its rates, “also weakened the peso against the greenback.”

For today, the trader said the peso may move between P51.30 and P51.50, while Mr. Dumalagan gave a wider range of P51.10 to P51.50.

“The dollar might strengthen amid generally hawkish signals from Fed Kaplan, Fed Harker, Fed Kashkari, and Fed George,” Mr. Dumalagan said.

Most Asian currencies weakened against the US dollar on Thursday as market participants adjusted positions as persistent volatility in regional equities lowered risk appetites.

Against a basket of six major currencies, the dollar was steady at 90.242, just shy of a two-week high of 90.40 touched on Wednesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan  was little changed, staying near its six-week low touched on Tuesday. — K.A.N. Vidal with Reuters