The US dollar (USD) has embarked on a strong upward trajectory in recent months, gaining ground against a basket of currencies in the foreign exchange (Forex) market.
One particular currency that has been losing a battle against the greenback is the Philippine peso (PHP), which declined to a new 10-month low on September 26.
At the time of publication, the USD/PHP pair was changing hands at 57, gaining 0.7% in the past week.
With its recent surge, the USD broke through the resistance level located at around 56.5, which now serves as a support zone.
Why is PHP under pressure?
In broad terms, PHP’s recent declines against the dollar were mainly caused by mounting oil prices and rising US Treasury yields. Crude oil skyrocketed to $95 a barrel last week, a level not seen since July 2022, before retreating to its current price of $93.5.
More recently, hawkish comments by Federal Reserve policymakers that another rate hike could be on the way this year also boosted the dollar against PHP and other popular currencies such as the Japanese yen (JPY) and Mexican peso (MXN).
As noted earlier, this momentum has lifted the USD/PHP pair to 57 – a level closely watched by the Philippines’s central bank as it eyes a potential market intervention.
Earlier in the week, central bank governor Eli Remolona signaled that policymakers are intervening to shore up the peso and prevent further declines.
What’s next for USD/PHP?
Commenting on the PHP’s recent movements, MUFG Bank’s senior currency analyst Michael Wan believes the Philippines’s central bank “can hold the 57 level, with FX reserves still quite ample.”
“Nonetheless, I don’t think the 57 level is necessarily sacrosanct over the medium term. BSP should allow the peso to weaken gradually, assuming that the moves are not too volatile, and other regional currencies also weaken.”
– Wan commented.
The peso has been one of the worst-performing Asian currencies in the current quarter, hovering around levels slightly above 57 since mid-August. The country’s policymakers allegedly see this level as a bottom line for the national currency.
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