Peso breaches 50:$1 mark during trading
By Doris Dumlao
Philippine Daily Inquirer
First Posted 04:40:00 11/22/2008
Filed Under: Foreign Exchange Markets, Economic Indicators
The peso breached the 50-per-dollar mark during trading Friday for the first time in two years but late-day bargain-hunting across Asian stock markets allowed it to firm up and close at 49.82 to the dollar, currency dealers said.
The peso opened trading at 50.00 to the dollar and hit a two-year low of 50.17 before ending near the day’s high, compared with Thursday’s finish at 49.999.
“Toward the end of the day, we saw some easing of pressures in regional equity markets so this provided relief to emerging markets,” said Estelito Biacora, vice president for treasury at Bank of the Philippine Islands. “Fund managers are looking for some value in oversold stocks.”
Corporate demand for foreign exchange was sluggish, Biacora added.
He said the correction favoring the peso might continue and test the 49.75 and 49.50 levels.
“However, there’s still uncertainty in emerging markets, considering that the theme among investors is still flight to quality,” Biacora said.
Another currency dealer said the central bank, which was trying to keep the peso from hitting the 50.00 to the dollar the past few days, was sidelined because the exchange rate opened at that level.
Afterwards, a bloodbath in the stock market dragged the peso to 50.17 to the dollar, the lowest level since touching 50.20 on Nov. 16, 2006.
However, the trader agreed that the stronger close would suggest a correction supporting the peso in the next few days.
The volume of trading on the currency spot market rose to $622.5 million from $444.5 million on Thursday.
On Thursday, the central bank’s policymaking Monetary Board kept its key interest rates steady for the second straight meeting, citing still-high core inflation and uncertainties arising from the foreign exchange volatility.
Core inflation, which excludes volatile items like food and fuel to get underlying year-on-year price trends, rose to 7.8 percent in October from 7.5 percent in September, even as the headline inflation rate dropped further to 11.2 percent from 11.8 percent, respectively.
The peso has depreciated by about 17 percent against the dollar since the start of the year.
ATR Kim Eng Securities economist Luz Lorenzo said in a commentary Friday that the volatility in the currency market was a more pressing issue.
“We agree a volatile currency presents inflationary risks. Drastic depreciation or appreciation is undesirable as it makes pricing in general highly uncertain, and sellers will tend to factor in this volatility,” Lorenzo said.
“Furthermore, even with easing headline inflation, most real interest rates”—interest rates adjusted for inflation—“are negative or close to zero, based on the gap with the policy rate and that adds to downward pressure on the peso,” she said. With editing by INQUIRER.net
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