Peso falls to new 18-month low as US Treasury yields increase

The peso fell to a new 18-month low against the dollar on Wednesday amid hawkish comments from a US Federal Reserve official, which pushed up Treasury yields.

The local unit closed at PHP 58.42 per dollar on Wednesday, weakening by 45 centavos from its PHP 57.97 finish on Tuesday, Bankers Association of the Philippines data showed.

This was the peso’s worst finish in over 18 months or since its PHP 58.58-per-dollar close on Nov. 7, 2022.

The local unit is now down by PHP 3.05 from its end-2023 close of PHP 55.37 versus the greenback.

The peso opened Wednesday’s session weaker at P58.07 against the dollar, which was already its best showing for the day. It dropped to as low as PHP 58.51 versus the greenback.

Dollars exchanged increased to USD 1.4 billion on Wednesday from USD 1.24 billion on Tuesday.

The peso weakened versus the dollar as hawkish statements from Minneapolis Fed President Neel Kashkari caused US Treasury yields to go up, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Stronger-than-expected US consumer confidence data pushed up US Treasuries, causing the peso to depreciate, Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

“The Philippine peso experienced the most significant drop among emerging Asian currencies,” Mr. Roces said.

US government bond yields pushed to a near four-week peak on Wednesday, lifting their global counterparts and pressuring stocks, as data sowed new doubts about the timing and extent of Federal Reserve rate cuts, Reuters reported.

US yields climbed after consumer confidence data came in stronger than expected on Tuesday, Mr. Kashkari said further rate hikes were still a possibility, and two Treasury auctions were poorly received by investors.

The benchmark 10-year US Treasury yield rose as high as 4.576%, a level not seen since May 3, and was last up 2 basis points at 4.566%.

Mr. Kashkari said Tuesday he is still not ruling out an interest rate hike, but it’s more likely the central bank could hold rates steady for an “extended” time as it waits for inflation to drop.

“We could sit here for as long as necessary until we get convinced that inflation is sustainably going back down to our 2% target,” the Fed policy maker said.

While holding rates at their current 23-year high “for an extended period of time is a more likely outcome,” Mr. Kashkari made it clear that other options are on the table if inflation doesn’t fall.

For Thursday, Mr. Ricafort expects the peso to range from PHP 58.30 to PHP 58.50 per dollar. — A.M.C. Sy with Reuters