Peso slips back to 42-to-a-dollar

The peso retreated back to the 42-to-a-dollar level yesterday as the greenback rose against most regional currencies and foreign portfolio investments continued to show risk-aversion in emerging markets.
Analysts also said concerns about mounting global and local inflationary pressures dampened investor confidence.
The peso hit a low of 42.10 to the dollar and a high of 41.98 at yesterday’s session but the strength of the dollar picked up, clouding what would have been a boost to the peso after the government announced a decline in its fiscal deficit.
Total transaction amounted to $937.70 million on an average rate of 42.058 to $1.
The dollar itself has been on an upswing against regional currencies as well as the euro after the market received news of weakening European economy that also resulted from the credit crisis in the US.
However, analysts said the strength of the dollar was likely to be temporary with classes scheduled to reopen in June and remittances expected to pick up dramatically ahead of the enrollment period.
Analysts said weak exports would probably provide some support to the dollar but since this would be accompanied by even slower importation, the net effect would be in favor of the peso.
Pronouncements made by the Bangko Sentral ng Pilipinas (BSP) that it might move interest rates higher, together with the expected surge in remittances, could also temper the rally of the dollar.
However, analysts said a clear break of 42 might set a higher trading range for the dollar and peso exchange rate.
Non-deliverable forwards also continue to price a higher exchange rate and analysts said this would maintain pressure on the peso to weaken. “Expect the BSP to provide liquidity as the US dollar moves higher,” said an analyst. “Failure to do so may create panic and see the US dollar at a higher level.”