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Peso movement reflect forex market shift – BSP - The Manila Times

THE Bangko Sentral ng Pilipinas (BSP) said the recent movements of the Philippine peso can be related to a shift in the foreign exchange market caused by a combination of external and local developments.

During a virtual briefing on Thursday, BSP Governor Benjamin Diokno said the peso depreciated versus the US dollar by 4.62 percent year-to-date, closing at 50.35:$1 on July 21, 2021, up from 48.02:$1 at the end of December 2020.

"In the last month or so, there have been some depreciation pressures on the peso, reflecting broad dollar strength driven by risk-off sentiment due to worries over the potential spread of the more contagious Delta [variant of] Covid-19 (coronavirus disease 2019) variant and the shift to a hawkish tone by the US Fed (United States Federal Reserve)," he emphasized.

Furthermore, as the Philippine economy improves, corporate dollar demand has picked up, according to Diokno.

He said, "We therefore see the recent movements of the peso as reflective of shifts in demand and supply conditions in the FX (foreign exchange) market as well as emerging external and domestic developments."

Nonetheless, the central bank governor highlighted that the peso is not the only currency that has weakened against the US dollar this year since most regional currencies have done so as well.

Overall, regional currencies have been pushed down by expectations of earlier US monetary policy relaxation, as well as uncertainty in their growth outlook, due to the protracted health crisis, Diokno pointed out.

In the future, he said, monetary officials expect the peso to be sustained by structural foreign exchange flows such as remittances from Filipinos abroad, revenues from business process outsourcing and, eventually, earnings from tourism activities. In addition, foreign exchange inflows from foreign direct investments are likely to support the local unit.