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Dollar to peso forecast: Exchange rate hits 3.5-year highs

By  Yoke Wong

Edited by Vanessa Kintu

10:01, 26 May 2022

Dollar to peso forecast: Exchange rate hits 3.5-year highs Illustration of the financial stock market chart, business investment concept and future stock trading.
Dollar to peso forecast: Exchange rate hits 3.5-year highs Photo: whiteMocca / Shutterstock.com

The US dollar (USD) exchange rate against the Philippine peso (PHP) strengthened over the past month, hitting 3.5-year highs in early May as higher US bond yields diverted investment away from emerging economies.

The USD/PHP exchange rate rose to 53.08 on 9 May, its highest level since 2 November 2018. Following an interest rate hike by Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, on 18 May, the peso’s value strengthened against the dollar and was last at 52.37 on 24 May. Nonetheless, the USD/PHP rate was 8.8% higher than the same time last year.

Prior to 18 May, the BSP had maintained a dovish monetary policy and a record low interest rate of 2%, in an attempt to safeguard Philippines’ post-Covid economic recovery. In contrast, the US tightened its monetary policies in 2022, raising interest rates and slowing asset purchases to counter the effect of rising inflation. 

The US Federal Reserve (Fed) raised interest rates by half a percentage point on 4 May, after its first hike in more than three years on 16 March, when the rate was lifted by 0.25%. 

The diverging monetary policies of the two countries contributed to the peso weakening against the dollar as the latter traded higher. In addition, rising US Treasury yields have also diverted investment away from emerging economies, further pressuring the Philippines peso’s value. 

The peso is not the only currency weakening against the dollar, as other emerging economies in the region are also exposed to the dollar’s growing strength. 

However, the recent interest rate hike by the BSP has narrowed the monetary policy gap between the US and Philippines, providing support to the peso.

US dollar to Philippine peso (USD/PHP) five-year price chart

Are you interested to learn more about the USD/PHP outlook in the near-to-mid term? Read this analysis for the latest forex (FX) news affecting the Philippine peso outlook and analysts’ dollar to peso prediction.

Philippines hikes interest to counter rising inflation 

On 18 May, BSP raised the Philippines’ overnight reverse repurchase facility rate by 25 basis points to 2.25%, from its record low of 2.00%. Interest rates on the overnight deposit and lending facilities were raised to 1.75% and 2.75% respectively. The Philippines government also settled the PHP300bn loan it owed the central bank ahead of the maturity schedule of 11 June 2022.

An interest rate hike was initially expected to occur in the second half of 2022, but rising inflation and better than expected economic growth rate have expedited BSP’s planned monetary policy tightening.

“The Monetary Board noted that the strong rebound in domestic economic activity and labour market conditions during the first quarter of 2022 provides scope for the BSP to continue rolling back its pandemic-induced interventions, consistent with its exit strategy from monetary accommodation,” said BSP.

The Philippines’ economy registered 8.3% gross domestic product (GDP) growth in the first quarter of 2022, which also marked four consecutive quarters of economic growth after the Covid-19 pandemic-induced contractions in 2020 to 2021.

In addition, BSP expected the average inflation in the country to rise to 4.6% in 2022 and 3.9% in 2023, primarily driven by higher oil prices and continued domestic shortages of pork and fish.

Economic analysis and forecast data provider FocusEconomics said on 18 May:

“The combination of a worsening inflation outlook and an improved growth outlook pushed the Bank to speed up its tightening of monetary policy.” 

Analysts expected BSP to maintain its hawkish stance with further rate hikes in the Philippines this year. Dutch bank ING forecast a further 75bp hike this year, while FocusEconomics expected the reverse repurchase rate to rise further, ending 2022 at 2.54% and 2023 at 3.09%.

Philippines’ medium-term growth prospect looks positive

Following the election of Ferdinand Romualdez Marcos Jr as the new Philippines president on 9 May, rating agency FitchRatings commented: 

“We foresee the government maintaining a focus on infrastructure investment, which is a key element of the country’s favourable medium-term growth prospects that support the sovereign’s ‘BBB’ rating.”

According to FitchRatings’ projections, the Philippines will likely continue with its sound policy framework and return to strong medium-term growth following the Covid-19 pandemic, but there are potential challenges in bringing down government debt after the pandemic policy response.

The rating agency warned that if governance standards deteriorate, “poorly managed public infrastructure investment could contribute to government debt rising faster than nominal GDP over the medium term, which would pressure the sovereign rating”.

AUD/USD_zero

0.67 Price
-0.330% 1D Chg, %
Long position overnight fee -0.0066%
Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00030

GBP/USD

1.29 Price
-0.290% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00170

USD/JPY

157.52 Price
+0.080% 1D Chg, %
Long position overnight fee 0.0108%
Short position overnight fee -0.0190%
Overnight fee time 21:00 (UTC)
Spread 0.040

AUD/USD

0.67 Price
-0.330% 1D Chg, %
Long position overnight fee -0.0066%
Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00030

Despite a modest weakening of the peso and rising pressure on the goods trade balance in recent months amid higher global energy prices, positive factors such as a gradual reopening of the Philippines’ tourism sector should support the country’s economy.

Additionally, the country’s “official reserve assets stood at a comfortable $107bn at end-April 2022, only slightly down from $109bn at end-2021”, which will provide credit strength to the country.

The Philippines’ central bank chief, Benjamin Diokno, also echoed the sentiment held by FitchRatings. 

Diokno told CNBC in an interview on 9 May that he was “not concerned” about the peso’s recent weakness against the dollar, as the country has a relatively low dependence on foreign debt and a hefty pool of international reserves.

The country benefited from access to a steady flow of foreign exchange as foreign remittances from overseas Filipino workers reached $2.888bn in March 2022, up 3.1% from the same time last year, BSP data showed. The total cash remittances grew by 2.4% year-on-year (YoY) to $7.771bn in the first quarter this year.

The long-term outlook for the country remains unclear, as it will depend on the impact of the Marcos government’s policy agenda once key appointments are finalised, particularly within the economic team.

USD to PHP forecast 2022

As of 25 May, according to AI-based forecast data provider Trading Economics, the Philippine peso was expected to trade at 52.43 against the dollar by the end of the second quarter of 2022. The forecaster’s US dollar to Philippine peso forecast was estimated at 53.14 in 12 months’ time.

A second analyst, The Economy Forecast Agency, predicted the Philippine peso to further depreciate against the dollar in the second half of 2022. According to its USD to PHP forex forecast, the exchange rate could rise to a high of 54.55 in November to December 2022. The USD/PHP exchange rate was forecast to stay mostly above 53 in 2023, rising to 55.91 in early 2024 before falling for the rest of the year to under 55. In 2025, the exchange rate was expected to be between 51.51 and 53.93.

In contrast, WalletInvestor’s dollar to peso (USD/PHP) expectations for the next 12 months were bullish, projecting the peso could rise in value to 51.847.

Note that analysts’ USD to PHP predictions can be wrong, and that forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing, and never invest or trade money you cannot afford to lose.

USD to PHP technical analysis

According to Investing.com’s weekly technical analysis for the currency pair on 25 May, the moving averages and technical indicators exhibited ‘strong buy’ signals.

The key classic pivot points were as below:

Classic: 52.353

Fibonacci: 52.353

Camarilla: 52.353

Woodie’s: 52.355

DeMark’s: 52.361

FAQs

Is the Philippine peso getting stronger?

As of 25 May, the Philippine peso has been getting stronger against the US dollar after the country’s central bank, Bangko Sentral ng Pilipinas (BSP), hiked the interest rate on 18 May.

What is the best time to trade USD/PHP?

The ideal time to trade USD/PHP is generally at between 12:00 and 15:00 Greenwich Mean Time (GMT), when market activity is at its highest level.

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