Peso slides as conflict drives up oil prices

The peso sank further against the dollar on Tuesday as the escalating Iran conflict pushed up oil prices, fanning inflation concerns.

The local unit fell by 23.5 centavos to close at PHP 58.435 against the greenback from its PHP 58.20 finish on Monday, data from the Bankers Association of the Philippines showed.

It opened Tuesday’s trading session a tad weaker at PHP 58.22 per dollar. Its intraday high was at PHP 58.17, while its worst showing was at PHP 58.478 versus the greenback.

Dollars traded went down to USD 1.927 billion from USD 2.24 billion on Monday.

“Market sentiment went heavy amid rising tensions in the Middle East and after the closure of the Strait of Hormuz, which pushed oil prices higher overnight,” a trader said by phone.

The Philippines is a net oil importer.

US President Donald J. Trump’s signals of a longer conflict also provided support to the dollar as the situation’s inflationary impact led markets to dial down their rate cut bets, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message,

For Wednesday, the trader sees the peso moving between PHP 58 and PHP 58.60 per dollar, while Mr. Ricafort expects it to range from PHP 58.30 to PHP 58.55.

The dollar strengthened on Tuesday as investors considered the implications of US and Israeli strikes on Iran on energy prices and the global economy, Reuters reported.

The US dollar index, which measures the greenback’s strength against a basket of six major peers, held close to a six-week high at 98.73 as the currency regained some of its allure as a safe haven. The yield on the US 10-year Treasury bond was up 0.9 basis point at 4.059%.

Mr. Trump sought to justify a broad, open-ended war on Iran, saying on Monday the campaign was ahead of expectations.

With no end to hostilities in sight, an official from Iran’s Revolutionary Guards said on Monday that the Strait of Hormuz is closed to marine traffic and the country will fire on any ship trying to pass.

The threat had an immediate impact, pushing the cost of hiring a supertanker to ship oil from the Middle East to China to a record high of more than USD 400,000 a day, LSEG data showed.

After oil and gas prices surged on Monday, Brent crude futures tacked on another 2.3% to USD 79.50 on Tuesday. In natural gas markets, benchmark European and Asian LNG prices leapt by around 40% on Monday.

The spike in energy prices could ramp up costs for Asian companies and weigh on their profits and their stocks, which have rallied sharply so far this year.

The surge in energy prices complicates the US Federal Reserve’s efforts to keep inflation under control, with policymakers already showing signs of division around the impact of artificial intelligence on the US economy. The US will take action to mitigate rising energy prices due to a spike in the price of oil caused by the Iran conflict, Secretary of State Rubio said on Monday.

Fed funds futures are pricing an implied 95.4% probability that the US central bank will hold rates at the end of its next two-day meeting on March 18, according to the CME Group’s FedWatch tool. The odds of a June hold, previously below 50%, edged up on Monday and are now slightly better than a coin-toss. — A.M.C. Sy with Reuters