The Philippine peso fell by the most in more than a week after minutes of the Federal Reserve’s September meeting showed most policy makers are in favor of cutting bond purchases that boosted inflows to emerging markets.
The currency dropped to a one-week low as the yield premium on three-month Philippine Treasury bills over similar-maturity U.S. securities narrowed to 38 basis points this week, the least in five months, data compiled by Bloomberg show. U.S. lawmakers are currently gridlocked in negotiations to raise the U.S. debt ceiling, almost a month after the central bank surprised markets by maintaining the $85 billion in monthly bond purchases.
“The lower short-term interest-rate differential and the recent indication of a higher probability of tapering from the Fed minutes is favoring the U.S. dollar over Asian currencies,” said Estelito Biacora, senior vice president and chief investment officer in Manila at Bank of the Philippine Islands. (BPI) “We are still seeing strong support for Philippine equities today despite the currency pressure.”
The peso weakened 0.2 percent to 43.230 per dollar as of the midday break in Manila, prices from Tullett Prebon Plc show. It touched 43.285 earlier today, the lowest level since Oct. 3.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped two basis points, or 0.02 percentage point, to 6.20 percent.
The Fed minutes showed it was “a relatively close call” to maintain the bond purchases in September.
“Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the committee’s purchases of longer-term securities this year and the completion of the program in mid-2014,” according to the record of the Federal Open Market Committee’s Sept. 17-18 gathering.
The Philippine Stock Exchange Composite Index rose 1 percent today, the biggest increase in a week. The government reported exports climbed 20.2 percent in August from a year earlier, the most since September last year.
The yield on the government’s 2.125 percent notes due May 2018 slipped four basis points to 3.01 percent, according to prices from Tradition Financial Services. That’s the lowest level in more than three weeks.
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