Philippine Peso Posts Biggest Monthly Drop in Two Years on Fed

The Philippine peso completed its biggest monthly drop since May 2012 on concern investors will pull funds from emerging markets as a U.S. economic recovery backs the case for the Federal Reserve to raise interest rates.

The Bloomberg Dollar Spot Index was poised for its best monthly performance in more than two years after data showed U.S. gross domestic product rose at the fastest pace since 2011 last quarter, while retail sales and consumer spending rebounded in August. Bangko Sentral ng Pilipinas raised its benchmark rate on Sept. 11 and said it may take further steps as inflation risks stay elevated.

“This is a firm dollar environment” amid expectations of interest-rate tightening in the U.S., said Mitul Kotecha, the head of Asia-Pacific foreign-exchange strategy at Barclays Plc. in Singapore. “The generally hawkish stance of the Philippine central bank will give some support to the currency.”

The peso weakened 2.9 percent in September to 44.875 per dollar in Manila, according to prices from Tullett Prebon Plc. It climbed 0.3 percent today, paring its quarterly loss to 2.7 percent.

U.S. employers probably created 218,000 jobs this month after an increase of 142,000 in August, according to a Bloomberg survey before data due Oct. 3. The U.S. economy expanded at a revised 4.6 percent annualized rate in the second quarter, up from a previous estimate of 4.2 percent, a Sept. 26 report showed.

Fed Forecast

The Fed raised by 25 basis points its median estimate for where the federal funds rate will be by the end of 2015 while reiterating a pledge to keep it near zero for a “considerable time,” Chair Janet Yellen said Sept. 17.

The Philippine central bank raised its benchmark rate to 4 percent from 3.75 percent this month, the second increase this year. Inflation held at 4.9 percent for a second month in August, the highest level since October 2011, according to data released Sept. 5.

One-month implied volatility in the peso, a measure of expected moves in the exchange rate used to price options, rose 203 basis points, or 2.03 percentage points, this month to 7.32 percent. The rate increased 3.02 percentage points this quarter and fell two basis points today.

The yield on the 3.875 percent Philippine government bonds due 2019 was steady at 3.48 percent in September, according to Tradition Financial Services. It declined two basis points from June 30.

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