Peso drops to fresh record low against dollar

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Metro Manila (CNN Philippines, September 20) — The Philippine peso plunged to a new record low against the dollar on Tuesday, as the greenback continues gaining ground amid expectations of another major US Federal Reserve interest rate hike.

Bankers Association of the Philippine figures show the local currency ended trading at ₱57.48, breaching the all-time low of ₱57.43 logged on Sept. 16.

The latest close was below Monday's ₱57.40, which was also the amount it opened Tuesday. The peso weakened to as low as ₱57.50 within the day, while ₱57.355 was its best value.

"That's mostly on positioning ahead of the Fed and BSP (Bangko Sentral ng Pilipinas) meetings, as well as risk off undertones with several central banks meeting this week," Security Bank chief economist Dan Roces said in a Viber message to CNN Philippines.

Both the Fed and the BSP will announce rate-setting actions this week.

RELATED: PSEi dives back to 6,400 level as investors await Fed, BSP decision

"It looks like the fx (foreign exchange) market is pricing only a 50 bps (basis points) RRP (reverse repurchase) rate hike from the BSP on Thursday vs the expected 75 bps Fed funds rate hike. Market is probably anticipating that we will hit (₱)58 unless the BSP-MB surprises with a bigger hike on Thursday," BPI lead economist Jun Neri told CNN Philippines on Viber.

Neri said the peso's fresh record low close again "marked an underperformance" versus its Asian peers. Among the factors he cited was the country's wider-than-expected current account, a view shared by Roces.

The peso also weakened on top of balance of payments deficit widening to $5.49 billion as of end-August, compared to $253 million the same period last year, explained RCBC chief economist Michael Ricafort in an email to CNN Philippines.

This "may be largely brought about by the significantly wider trade deficits as imports have been bloated by elevated global commodity prices earlier this year largely attributed to the Russia-Ukraine war," Ricafort said, also citing the pick-up in imports with the domestic economic reopening.

The peso has depreciated by 12.7% or ₱6.481 since the start of 2022, added Ricafort.