Peso weakens to lowest since 2009

The US dollar surged at the start of the week following a strong jobs report, sending currencies like the peso falling as investors became more sure of a December rate increase by the Federal Reserve.

The peso on Monday dropped to close at 47.16 to $1, 22.5 centavos weaker than last Friday’s level of 46.935. It was the lowest closing level of the local currency since 2009.

“More or less, it’s a regional move,” Bank of the Philippine Islands economist Nicholas Mapa said. “Even against major currencies, the dollar was stronger.”

The greenback’s rally followed a report showing US unemployment declined to its lowest since before the global financial crisis. Data for past months were also revised higher.

Investors took the cue from the improved employment situation and priced in a higher possibility of a rate increase by the American central bank in December.

Based on US Fed bets made by traders, the chances of the Fed’s “liftoff” in December rose to 68 percent from 50 percent before the jobs report.

“Absent any game-changing data, we should see a rate hike next month,” Mapa said.

A rate increase by the Fed ends nearly a decade of near-zero interest rates in the world’s biggest economy. It also starts the unwinding process of ultra-cheap money policies that were put in place in response to the 2008 financial crisis.

The local currency was weak all day yesterday, opening at 47.10 to $1, which was its strongest for the session. It weakened steadily throughout the day, hitting an intra-day low of 47.21 to $1. Volume rose to $720.4 million from Friday’s $590.8 million.

Effects of a weak peso on different sectors of the economy vary. Exporters and outsourcing firms favor a weaker peso because it translates to more cash for every dollar they earn from overseas. The value of overseas Filipino workers’ remittances also rises when the peso weakens.

The opposite is true for sectors that spend in foreign currencies. Imports become more expensive when the peso is weaker. A depreciating currency also makes dollar-denominated obligations of businesses and the government more expensive.