The peso remains the second weakest currency in Asia
Global investment banking giant Goldman Sachs has turned âbearishâ on the Philippine peso due to increasing cases of COVID-19 in the country and the current weakness of the local currency against the US dollar.
In a report released last week, Goldman Sachs noted that the peso weakened against the greenback by about 7% between June and mid-August.
This has made the peso the second worst performing currency in Asia (apart from Japan) – alongside the Thai baht – in the past two or three months, he said.
Between the start of this year and June, Goldman Sachs observed that the forex market, including offshore funds, interbank players and corporations, had mainly favored the peso against the US dollar, given the strong local currency performance in 2020. of the region’s best-performing currencies last year, as import spending declined due to weak economic activities during the pandemic, while offshore government borrowing boosted foreign capital inflows.
But the signal from the US Federal Reserve that it will end its monetary stimulus sooner than expected, meaning US interest rates are expected to rise, has re-energized the US dollar. Those who had previously taken large short (sold) US dollar positions rushed to unwind them, suggested Goldman Sachs.
âAs a result, the peso-dollar rate went from 47.50 to 50.50 in two months. The pair appear to have stabilized now, and we think the BSP (Bangko Sentral ng Pilipinas) might be tempted to smooth out other sharp moves, âhe added.
On top of that, Goldman Sachs pointed to the sharp rise in new COVID-19 infections to around 13,000 per day from 8,000 in early August. New coronavirus cases hit a record 17,231 on Friday.
In addition, Goldman Sachs said that “the vaccination rate remains relatively low at 13%” of the population.
“However, as cases of COVID-19 ease mobility restrictions are relaxed and the economy reopens, so we expect the peso to resume its underperformance against its peers. non-Japanese Asians, âGoldman Sachs said.
Goldman Sachs noted that last year the peso outperformed the region as the most stringent lockdowns imposed on the Philippines reduced demand for imported capital goods and raw materials, which were paid in dollars, d ‘where the current account fell into a surplus equivalent to 3.6%. of gross domestic product.
It had also helped the peso that “corporate dollar bond issuance was significant in 2020 at $ 6 billion from $ 4 billion in 2019 … because the costs of borrowing abroad declined in the middle of falling US yields, âGoldman Sachs said. INQ
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