Peso drops further on hawkish Fed, Iran war

The peso sank further against the dollar on Thursday following hawkish signals from minutes of the US Federal Reserve’s June policy meeting and worries over the ceasefire deal between the United States and Iran. 

The currency fell by 10 centavos to close at PHP 61.605 per dollar from PHP 61.505 on Wednesday, based on data on the Bankers Association of the Philippines’ website.

The local unit opened Thursday’s session sharply weaker at PHP 61.62 versus the greenback. It climbed to as high as PHP 61.53, while its intraday low was at PHP 61.64 per dollar.

Dollars traded increased to USD 1.258 billion from USD 1.164 billion previously.

“The peso weakened after the latest Fed minutes hinted about a compelling case for policy rate hikes during the June meeting,” a trader said in an e-mail.

Concern about high inflation mounted at the US central bank’s meeting last month, as officials followed Federal Reserve Chairman Kevin Warsh’s lead to a more stripped-down policy statement even amid concerns that price increases were broadening and might require interest rate hikes, Reuters reported.

A “few participants” at the June 16-17 meeting said there was already a case to raise borrowing costs, even though they ultimately agreed with their colleagues to hold rates steady “at this meeting.”

Fresh tensions between the US and Iran also dragged the peso, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. “The latest US strikes led to some concerns the Middle East conflict will disrupt shipping through the Strait of Hormuz.”

He added that sentiment turned negative as more organizations cut their Philippine economic growth forecasts. On Wednesday, the International Monetary Fund trimmed its Philippine gross domestic product growth forecast for this year to 3.9% from 4.1% previously, while the Asian Development Bank lowered its projection to 3.8% from 4.4%.

Both are within the government’s revised 3.5-4.5% growth target for 2026.

For Friday, the trader said the local currency could recover on profit taking and move between PHP 61.45 and PHP 61.70 a dollar, while Mr. Ricafort said it could range from PHP 61.50 to PHP 61.70. — Aaron Michael C. Sy