The Philippine peso completed its worst week in a year as foreign funds reduced their holdings of the nation’s assets amid concern the Federal Reserve will cut monetary stimulus.
The Philippine Stock Exchange Composite Index (PCOMP) dropped 3.4 percent in the past five days, its biggest loss in 12 months. The peso touched an 11-month low yesterday before the government reported economic growth accelerated to 7.8 percent last quarter from a revised 7.1 percent in the preceding three months. It rose 0.2 percent today.
“We anticipate the feel-good sentiment spawned by the first-quarter GDP would not prosper against a strong U.S. dollar in the near term,” said Jun Trinidad, an economist in Manila at Citigroup Inc.
The peso weakened 1.6 percent this week to 42.263 per dollar in Manila, the biggest loss since the five days ended May 18, 2012, according to prices from Tullett Prebon Plc. The currency touched 42.625 yesterday, the lowest level since June 25. It declined 2.6 percent this month, the most in a year.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 72 basis points, or 0.72 percentage point, this week to 6.63 percent. The gauge dropped 90 basis points today.
Overseas funds sold $112 million more local stocks than they bought this week through yesterday, exchange data show. Fed Chairman Ben S. Bernanke said last week that the central bank’s $85 billion of monthly bond purchases may be tapered if there are signs of a sustained recovery in the U.S. economy.
The higher growth in the Philippines is sustainable as investments have increased and employment has improved, central bank Governor Amando Tetangco told reporters in Manila yesterday.
“Over the medium term, there’s still room for the Philippine peso to appreciate,” said Dominic Bunning, a foreign-exchange strategist in Hong Kong at HSBC Holdings Plc.“The fundamentals are still sound.”
The yield on the 5.875 percent sovereign bonds due March 2032 climbed 39 basis points this week to 4.34 percent, according to prices from Tradition Financial Services. The rate fell 11 basis points today.
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