Macro

Peso Hits New Low at 57.20/Dollar Amid Fed, Global Tensions

Peso hits new low at 57.20/dollar as Fed delays rate cuts, sparking concerns over emerging market currencies.

By Mackenzie Crow

4/16, 21:58 EDT
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Key Takeaway

  • Philippine peso weakened past 57-per-dollar, hitting its lowest since November 2022 amid delayed Fed rate cut expectations.
  • Central Bank Governor Remolona is comfortable with the peso's level, indicating minimal intervention in the currency market.
  • Rising US dollar strength due to Middle East tensions and Fed's inflation response pressures emerging market currencies.

Peso Weakness Amid Fed Rate Cut Delays

The Philippine peso experienced a notable decline, breaching the 57-per-dollar mark for the first time since November 2022. This movement was largely attributed to growing expectations that the Federal Reserve will postpone interest rate cuts, exerting pressure on risk-sensitive assets. The peso's depreciation was marked by a 0.4% drop to 57.20 per dollar on Wednesday, highlighting investor concerns over the Fed's monetary policy direction in response to persistent inflationary pressures.

Governor Eli Remolona of the Philippine central bank commented on Monday regarding the peso's depreciation, indicating a stance of minimal intervention in the foreign-currency market. Despite describing 57 as a "weak support level," Remolona's previous statements in September about defending the peso at this threshold suggest a nuanced approach to currency management, focusing more on smoothing volatility rather than defending specific levels.

Central Bank Stance on Currency Intervention

The Philippine central bank's approach to the peso's depreciation underscores a strategy of limited intervention, with a focus on managing excessive volatility rather than maintaining strict support levels. Governor Remolona's remarks signal a comfort with the peso's current trajectory, despite the breach of what was once considered a critical level. This stance is reflective of a broader trend among emerging market central banks, which are grappling with the challenges of a strengthening US dollar and the implications of Fed policy on their domestic currencies.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp. in Manila, emphasized the importance of the central bank's role in mitigating volatility, suggesting that 57.70 per dollar could emerge as the next significant support level for the peso. This perspective highlights the ongoing challenges faced by policymakers in navigating the complex dynamics of foreign exchange markets amid shifting global economic conditions.

Global Context and Emerging Market Responses

The peso's weakness is part of a larger narrative involving the strengthening of the US dollar, fueled by rising tensions in the Middle East and signals from Fed Chair Jerome Powell that rate cuts may be further delayed. These developments have prompted central banks across emerging markets to bolster support for their currencies, with South Korean officials notably intensifying their rhetoric against the won's depreciation. Bank of Korea Governor Rhee Chang-yong characterized recent movements in the won as somewhat excessive, reflecting a broader concern among emerging economies about the impact of external monetary policies on their financial stability.

Street Views

  • Michael Ricafort, Rizal Commercial Banking Corp. (Neutral on the Philippine peso):

    "The central bank will need to smoothen volatility, at the very least."

Management Quotes

  • Eli Remolona, Governor of the Central Bank:

    "He’s comfortable with the peso’s current level and that the central bank has hardly been intervening in the foreign-currency market." "Described 57 as a 'weak support level,' meaning it’s not a key focus for authorities."