The Philippine peso was headed for a weekly drop as foreign funds sold local stocks on speculation the Federal Reserve will scale back its bond purchases that have spurred inflows to emerging-market assets.
The peso weakened beyond 43 to the dollar for the first time in a year this week. Overseas investors sold $55 million of Philippine shares from June 10 through yesterday, taking this month’s net sales to $256 million, exchange data show. The central bank yesterday kept its benchmark overnight borrowing rate unchanged at 3.5 percent and refrained from amending the 2 percent rate on its special-deposit accounts after gross domestic product grew 7.8 in the first quarter, the fastest pace in the region.
“The peso has been doing terribly as the stock market has dropped,” said Leong Sook Mei, Southeast Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Singapore. “There is no need for rate cuts when the peso is weakening and the economy is Asia’s best-performing.”
The peso slipped 1.3 percent this week and gained 0.6 percent today to 42.825 per dollar as of 11:12 a.m. in Manila, according to Tullett Prebon Plc data. It touched 43.295 yesterday, the lowest level since June 8, 2012. The Philippine Stock Exchange Composite Index has fallen 6 percent this week.
The currency has lost 4.3 percent this year after appreciating 6.8 percent in 2012. The peso remains supported by positive fundamentals, and the authorities will maintain a “strategic presence” in the markets, central bank Governor Amando Tetangco said in an interview to Bloomberg TV today.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 198 basis points, or 1.98 percentage point, to 8.47 percent in the past five days. The gauge fell 25 basis points today.
The yield on the 8 percent government bonds due July 2031 increased three basis points to 4.65 percent in the past five days, according to prices from Tradition Financial Services. The rate fell 10 basis points today.
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