US political turmoil seen adding pressure on peso, says analyst

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The political turmoil ahead of the presidential elections in the United States could potentially stoke a capital flight to safe haven assets and weaken the peso, although sound fundamentals would likely cushion the local currency from too much volatility, analysts said.

Such an impact was already on display at the start of the week. Following news over the weekend about an assasination attempt on former US President Donald Trump during a campaign rally, the peso shed 10 centavos from its previous finish to close at 58.48 against the greenback on Monday.

The peso’s worst-showing yesterday stood at 58.58. Trading was also heavy, with $1.1 billion switching hands.

READ: Marcos on Trump assassination attempt: ‘We condemn violence’

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said such developments stateside could weigh on the local currency, although the peso can still find support from the country’s traditional sources of foreign exchange.

“I think there will be a knee-jerk reaction, but the fundamentals will eventually take over,” Asuncion said.

The shooting incident at Trump’s campaign rally came at a volatile time for the US, which is already facing political uncertainty amid a chaotic race to the White House. In the past weeks, President Joe Biden had been grappling with a chaotic reelection bid amid criticisms that he isn’t up to the job.

Those developments are adding to the bearish sentiment on the peso, which has been facing volatility from diverging rate outlook in the US and extremely dovish remarks from officials of the Bangko Sentral ng Pilipinas.

At its last policy meeting in late June, the Monetary Board (MB) kept the key rate unchanged at 6.5 percent—the tightest in over 17 years. But BSP Governor Eli Remolona Jr. said it is now “somewhat more likely than before” that the MB  would cut the policy rate by a total of 50 basis points (bps) this year—with the first 25-bp cut possibly in August and ahead of the US Federal Reserve, which markets expect to ease in September.

READ: Recent data adds to Fed confidence on cooling inflation: Powell

Moving forward, Robert Dan Roces, chief economist at Security Bank Corp., said all eyes will be on the outcome of the US elections and its impact on the global economy.

“While it is too early to tell, increased uncertainty may drive investors to safe-haven assets, potentially weakening the peso. Protectionist rhetoric could affect Philippine exports, while changes in immigration policies might influence remittances,” Roces said.

“Shifts in foreign investment flows, global economic sentiment, and US monetary policy expectations could also sway the peso’s value. However, the currency’s actual response will depend on market perceptions of potential outcomes and their implications for US-Philippine relations and the global economy,” he added.