The Philippine peso fell to a 19-month low and bonds dropped after U.S. economic data bolstered the case for the Federal Reserve to start tapering stimulus that has inflated asset prices in emerging markets.
The index of U.S. leading indicators climbed in July by the most in three months, according to a report released yesterday, signaling improvement in housing and labor markets will help foster faster economic growth through year-end. Asian currencies fell this week as minutes of the Fed’s July meeting showed officials were “broadly comfortable” with reducing bond buying this year if the economy improves.
“The peso is just tracking the weakness of most regional currencies,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “There’s a fundamental basis for the peso to outperform given the current-account surplus position, growth remaining generally on target, and monetary authorities having ample reserves.”
The peso fell 0.2 percent to 44.25 per dollar at 11:41 a.m. in Manila, according to Tullett Prebon Plc. The currency touched 44.305 per dollar earlier, the weakest level since Jan. 9, 2012, and dropped 1.3 percent this week. Financial markets were closed on the first three days of the week because of floods and a holiday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 25 basis points, or 0.25 percentage point, to 6.76 percent.
The yield on the 8 percent bonds due July 2031 rose 23 basis points to 4.98 percent, the highest since July 10, according to Tradition Financial Services Inc. The rate climbed 53 basis points this week. The Philippine Stock Exchange (PCOMP) Index fell 0.2 percent after plunging 6 percent yesterday. Financial markets will be shut Aug. 26 for a holiday.
The central bank will curb volatility in the currency market, Deputy Governor Diwa Gunigundo said yesterday. Moody’s Investors Service may raise the Philippines to investment grade in October, he said.
The $250 billion Asian economy probably expanded 7.3 percent in the three months through June, according to the median estimate of economists in a Bloomberg News survey before data due Aug. 29. Gross domestic product increased 7.8 percent in the first quarter, outpacing China to become the fastest in the region.
The Federal Reserve will probably reduce its $85 billion monthly bond purchases in its September meeting, according to 65 percent of economists surveyed by Bloomberg Aug. 9-13.
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