Peso sheds gains on latest US-Iran flare-up

The peso weakened against the dollar on Wednesday, erasing most gains notched in the previous day due to renewed tensions between the United States and Iran. 

The currency declined by seven centavos to close at PHP 61.745 versus the greenback from PHP 61.675 on Tuesday, according to Bankers Association of the Philippines data posted on its website.

The local unit opened Wednesday’s session nearly flat at PHP 61.68 per dollar. It again traded within a narrow range, logging an intraday high of PHP 61.655 and a trough of PHP 61.75 against the greenback, which is its record-low finish.

Dollars traded rose to USD 1.89 billion on Wednesday from USD 1.299 billion on Tuesday.

“Renewed US-Iran tensions lifted the pair to close higher amid flight to safe havens,” a trader said by phone.

Higher global crude oil prices due to the escalating Middle East conflict dragged the peso lower, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Thursday, the trader said the peso could test new record lows and move between PHP 61.50 and PHP 61.90, while Mr. Ricafort sees it ranging from PHP 61.55 to PHP 61.75.

Renewed strength in the dollar pushed the Japanese yen back to the key JPY 160 level on Wednesday, prompting verbal warnings from authorities and keeping traders on alert for intervention, as fresh Gulf hostilities bolstered demand for the greenback, Reuters reported.

The US said Iran launched ballistic missiles toward regional neighbors, but all failed to hit targets, and that US forces conducted strikes on Qeshm Island in response.

Diplomatic talks between Iran and the United States remain at a stalemate, keeping the market mood somber. The dollar has tended to rally during flare-ups of the conflict, underpinned by safe-haven demand and the US’ lower sensitivity to energy price shocks; the yen tends to weaken as oil rises, given Japan’s reliance on imported energy.

The yen on Wednesday fell to the closely watched JPY 160-per-dollar level, where authorities have previously intervened. That erased its gains made in the wake of Tokyo’s JPY 11.7-trillion (USD 73-billion) intervention a month ago to shore up the ailing currency.

Prime Minister Sanae Takaichi said later that authorities stood ready to respond to exchange rate moves as needed.

The dollar was last a touch softer on the day at JPY 159.66 following Ms. Takaichi’s comments.

In the broader market, trading in currencies remained in tight ranges.

The euro eased 0.1% to USD 1.1620, while sterling was flat at USD 1.3460.

The prolonged war in the Middle East and persistently high energy prices have left investors ramping up bets of policy tightening across major central banks this year, a sea change from the rate cuts that were priced in prior to the conflict.

Against a basket of currencies, the dollar was steady at 99.29. — Aaron Michael C. Sy with Reuters