The PESO weakened against the dollar on Wednesday as the country’s balance of payments (BoP) position was in deficit in June.
The local unit closed at P56.29 to the dollar on Wednesday, losing 3.5 centavos from its finish of P56.255 on Tuesday, based on data from the Philippine Bankers Association.
Year-to-date, it has weakened 10.3% or 5.29P since its close of P51 against the dollar on December 31, 2021.
The peso opened Wednesday’s session at 56.18 pesos against the dollar, which was also its intraday best. Its weakest performance was at P56.35 against the greenback.
Traded dollars rose to $710.05 million on Wednesday from $663.05 million on Tuesday.
Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said the peso had weakened against the dollar, with the latest BoP data released Tuesday by Bangko Sentral ng Pilipinas (BSP) showing that the external position of the country was in deficit last month.
The country’s BoP position stood at a deficit of $1.57 billion, wider than the $312 million gap recorded a year ago. Still, that was lower than the $1.61 billion deficit recorded in May, which was the largest gap since $2.019 billion seen in February 2021.
In the first half of the year, the country’s BoP deficit widened to $3.1 billion from $1.9 billion recorded in the same period of 2021.
BSP expects the country’s BoP to run a deficit of $6.3 billion this year, equivalent to -1.5 percent of gross domestic product.
The peso also weakened on concerns over rising cases of coronavirus disease 2019 (COVID-19) in the country, Ricafort said.
“The peso weakened on some caution ahead of the US Existing Home Sales report,” one trader said in an email.
“The local currency could appreciate [on Thursday] that the expectations of an ECB (European Central Bank) a rate hike could reduce some of the greenback’s strength,” the trader added.
ECB policymakers plan to raise interest rates 50 basis points more than expected at their Thursday meeting to tame the record highflation, two sources with direct knowledge of the discussion told Reuters.
To cushion the impact of higher borrowing costs, policymakers are also expected to announce a deal to help indebted countries like Italy in the bond market. The deal will require them to abide by European Commission rules on reforms and fiscal discipline, the sources said.
The ECB is preparing to carry out its first rate hike in more than a decade on Thursday in a difficult economic context exacerbated by the war in Ukraine. Inflation is high and rising as economic growth has slowed and a political crisis in Italy is keeping investors on edge.
This dynamic creates a balance for the ECB between raising rates to curb price growth and ensuring that the most indebted of the 19 member countries of the euro zone do not encounter financial difficulties.
The trader expects the local unit to move between 56.20P and 56.40P per dollar on Thursday, while Mr. Ricafort gave a forecast range of 56.15P to 56.35P. — KB Ta-asan with Reuters