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Philippine Peso Is Back in Business but Downtrend to Resume, Thinks DBS

Posted Nov 08, 2018

There’s life in the old dog yet.

The Philippine peso, a currency that has repeatedly made news for the wrong reasons, is among the best performers of the past month.

Respective gains of 3.3 percent and 6.2 percent over the past month against the US dollar and euro have given holders of pesos cause for optimism. At the end of Wednesday’s New York session, USD/PHP was quoted at a 5-month low (peso high) of ₱52.68 and EUR/PHP at a 10-month low of ₱60.29.

Dollar weakness, refuelled by Tuesday night’s midterm election results, is supporting the rise in emerging markets generally, but the peso is being sought for its own reasons, especially ahead of important economic data on Thursday which will likely show robust GDP growth of 6.3 percent for the year ending September-30.

Peso strength is also the result of a “perception that inflation has already peaked,” thinks Union Bank of the Philippines economist Ruben Carlo Asuncion. Runaway inflation is typically high on the list of concerns for those who invest in emerging market currencies or assets.

In the medium term, the peso’s downtrend will likely resume though, at least according to chief economist at DBS, Taimur Baig.

Talking to Bloomberg TV, Baig explains why he prefers to consider currency valuations as they relate to a country’s ability to service its external debt relative to its current account standing, and this leaves weakness as an inevitable and necessary evil for the peso.

The Philippines has “seen a steady deterioration in its balance of payments position, particularly because of a very sharp rise in imports.”

With a “very similar dynamic” likely to play out over the medium term, Baig ranks the peso among the top four currencies to bet against in 2019—the others being the Chinese yuan, Indian rupee and Indonesian rupiah.

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