The Philippine peso rose to an 11-week high on speculation the Federal Reserve will loosen monetary policy, increasing the amount of dollars available to be invested in emerging-market assets. Bonds were steady.
Overseas investors bought $140 million more Philippine stocks than they sold this month through April 27, exchange data show. The U.S. economy expanded less than analysts forecast in the first quarter, the Commerce Department reported on April 27. Federal Reserve Chairman Ben S. Bernanke said last week he was prepared to add more stimulus to spur growth if needed.
“Asian currencies are going to be strong today,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. “The markets are thinking the Fed will engage in more quantitative easing” after the softer-than expected gross domestic product data, he said.
The peso appreciated 0.4 percent to close at 42.215 per dollar in Manila, capping a 1.7 percent gain for April, according to Tullett Prebon Plc. The currency touched 42.210 earlier, the highest level since Feb. 10.
One-month implied volatility, which measures exchange-rate swings used to price options, increased 20 basis points today to 4.5 percent. It dropped 140 basis points this month.
U.S. gross domestic product increased at a 2.2 percent annual rate in the first quarter after a 3 percent pace in the preceding three months. The median projection of economists surveyed by Bloomberg News was for a 2.5 percent gain.
The Philippines’ benchmark overnight borrowing rate at 4 percent makes the peso attractive to investors looking for higher yields compared with near-zero rates in the U.S.
Bangko Sentral ng Pilipinas is closely watching deposits to its short-term accounts that pay more than longer-dated government debt and is prepared to take measures to prevent speculative activity, including carry trades, Governor Amando Tetangco said on April 28. The central bank’s one-month SDA pays a rate of 4.1875 percent while the nation’s three-month Treasury bill yield averaged 2.494 percent earlier this month.
The yield on the Philippines’ 5 percent bonds due August 2018 was steady at 5 percent, according to prices from Tradition Financial Services. The rate increased five basis points, or 0.05 percentage point, this month.