Peso breaks into 40-to-$1 territory

The peso broke into the 40-to-$1 territory for the first time since March 2000, briefly hitting an intra-day high of 40.99 before closing at 41 to a dollar.

At yesterday’s trading at the Philippine Dealing System (PDS), the peso opened strong at 41.050 before hitting a high of 40.990 and a low of 41.110.  Yesterday’s close was one centavo higher than Friday’s close of 41.010 to the dollar.

Analysts expect the peso to continue picking up momentum as inflows mostly from remittances sent by overseas Filipinos workers (OFWs) continue to surge.

The peso was Asia’s top performing currency in 2007, rising by an average of 19 percent against the dollar.

The US dollar itself has been stable after posting a recovery following its prolonged weakness, especially against the euro.

But traders said there had been some volatility in the market, sparked mainly by fears of a US recession.

Analysts said fears of a US recession rattled global markets with most of the region suffering heavy losses in the wake of sharp falls on Wall Street. A weak jobs market report sparked fears that the US economy could be buckling under the intense pressure of the subprime mortgage crisis, they said.

The Development Budget Coordination Committee (DBCC) had already adjusted its exchange rate assumption for 2008 to 42 to 45 to the dollar, taking into account the dramatic appreciation of the peso in 2007.

The forex assumption is used by economic planners when setting macro-economic and fiscal targets for the year.

The country’s growth target of 6.3 to seven percent was based on the assumption that the peso-dollar exchange rate would fall within the 42 to 45 range.

Traders however, are expecting the peso to go through some period of weakness as a result of the short-run nervousness over weak economic data in the US, particularly on US durable goods.

The market has also been warned of even bigger fourth-quarter write-offs than previously expected as a result of the crunch in the US credit market. With default rates in the US housing sector still climbing, losses were expected to mount as large financial institutions write off more losses from their investments in subprime instruments.–Des Ferriols, Philippine Star