Peso falls back to P61 level on uncertainty over US-Iran talks
Key Takeaways
- •The peso fell 23.5 centavos to close at P61.165 against the dollar on Tuesday, with trading volume rising to $1.65 billion from $1.45 billion the previous session.
- •The Japanese yen slipped 0.4% to ¥157.8 per dollar but retained most of the gains from last week's rare coordinated intervention by Tokyo and Washington.
- •The US Treasury reportedly purchased yen using euros rather than dollars during intervention, an unconventional move possibly intended to support Japan's currency without signaling Washington's desire for a softer dollar.
- •Rising oil prices amid uncertain US-Iran negotiations pressured the peso, as the Philippines is particularly vulnerable to energy price swings due to its status as a net oil importer.
- •Markets are pricing in approximately 35 basis points of Federal Reserve rate hikes by December, with Friday's July nonfarm payrolls report viewed as a critical input for policy timing.
THE PESO slid back to the P61-a-dollar level on Tuesday amid mixed developments on peace talks between the United States and Iran, and as the yen weakened again a day after a joint intervention effort lifted the embattled currency.
The local unit declined by 23.5 centavos to close at P61.165 against the dollar from its P60.93 finish on Monday, based on data from the Bankers Association of the Philippines.
It opened the session slightly weaker at P60.95, rose to an intraday high of P60.90, and hit a low of P61.222 versus the greenback.
Dollars traded climbed to $1.65 billion from $1.45 billion.
A trader said the peso finished weaker as it tracked the yen and followed US President Donald J. Trump's statement that there was a "last chance" for peace talks with Iran. Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that oil's gains, amid uncertainty over a peace deal between the US and Iran, also weighed on the currency. The Philippines, as a net oil importer, is particularly sensitive to swings in global energy prices, which feed through to the trade balance and inflation.
For Wednesday, the trader sees the peso moving between P60.90 and P61.30 depending on US labor data, while Mr. Ricafort expects a range of P61.05 to P61.30.
The yen slipped on Tuesday but retained most of the gains from intervention efforts after last week's joint action by Tokyo and Washington to support the currency kept speculators from rebuilding bearish positions, Reuters reported. The yen's movements often ripple across Asian emerging market currencies, including the peso, as investors adjust regional risk exposure.
The yen was last down 0.4% at ¥157.8 per dollar, giving back some of its gains after reaching a three-month high of ¥155.20 in the previous session, but it remained well above its 40-year low of ¥163.99 touched in July.
The Japanese currency had surged as much as 5% over the previous three trading sessions, after Japan confirmed coordinated yen-buying intervention with the US on Friday in a rare move.
"While joint intervention may prove more effective at helping to provide support for the yen in the near term, we still believe that it can only buy time," said Lee Hardman, senior currency analyst at MUFG.
"There will need to be a change in fundamentals as well to encourage a sustainable reversal of the yen weakening trend that has been in place over the last five years," he said, referring to Japan's much lower interest rates than those in the US.
Two market sources told Reuters that the US Treasury bought yen for euros last week instead of selling dollars, an unusual move that may have been aimed at helping Japan strengthen the yen without encouraging the view that Washington wants a softer dollar.
Against the euro, the yen slipped 0.5% to ¥181.62, down from Monday's almost nine-month high of ¥179.44.
Monday's sudden surge in the yen prompted speculation that Japanese authorities had intervened again, though officials gave no confirmation.
Analysts at Citi said trading volumes in dollar/yen reached roughly $27 billion in the early morning window on Monday, compared with recent averages of $1.9 billion.
Bank of America strategists said ¥155 could be a critical inflection point in the market, as the currency pair found a floor around that level during intervention in April and May this year.
The dollar was also under pressure, having weakened after the yen-buying intervention and amid falling oil prices.
Mr. Trump said on Monday that talks with Iran were under way, warning that it was a "last chance" for Tehran to sign a good deal to end the five-month-old war. Iran denied that any negotiations were being held or planned.
Against the greenback, the euro was little changed at $1.151 after touching a 1-1/2-month high of $1.156 in the previous session, while sterling fetched $1.343.
The dollar index rebounded from a 1-1/2-month low to 100.
The Australian dollar rose 0.3% to $0.702.
Investors had sold the dollar after the US Federal Reserve kept rates unchanged last week, with losses accelerating after the yen intervention.
"This week's nonfarm payrolls for July is a key input into the timing of the eventual tightening cycle," said Joseph Capurso, a strategist at Commonwealth Bank of Australia, referring to the closely watched US jobs report due on Friday.
Markets are currently pricing in about 35 basis points' worth of Fed rate hikes by December. — A.M.C. Sy with Reuters