MANILA – The peso closed at P50 to the dollar on Friday, weakening to its lowest level in a decade, on strong corporate demand for the greenback.
It was the local currency’s weakest close since Nov. 2006. Aside from high dollar demand, uncertainty over interest rate hikes by the Federal Reserve weighed on the peso, Bangko Sentral Deputy Governor Diwa Guinigundo said.
“Still the same story of external market uncertainty,” Guinigundo said.
Higher interest rates in the US could move funds out of emerging markets like the Philippines, driving demand for the dollar.
Fed Chair Janet Yellen this week signaled a faster tightening pace, with the market upgrading its expectations to three rate hikes this year instead of two.
Bangko Sentral could raise interest rates as early as next month, following the Fed’s lead, DBS Bank said.
The dollar headed for a second day of losses on Thursday, falling against the euro, yen and the basket of currencies that measures its broader strength, after hitting its highest in a month a day earlier.
Analysts pointed to a mixture of unexpected drops in US industrial output on Wednesday and a retreat by US treasury yields from recent highs as possible drivers of the dollar fall, while markets weigh the likelihood of an early rate increase.
The dollar index was down 0.4 percent, falling to 100.81 from a peak of 101.76 hit on Wednesday after the better-than-expected US inflation numbers and retail sales data.
Traders price in a 31 percent chance of a rate increase at the Fed's March meeting, up from 13 percent on Monday, according to the CME Group's FedWatch Tool. -- with reports from Reuters