The Philippine Peso is set to fall in 2008 as it may struggle to retain its current strong position as it faces reduced exports and a drop in its attractive yields. The Philippine peso was Asia's best performing currency in 2007 amidst the strong influx of foreign exchange inflows from Overseas Filipino Workers (OFWs) coming home to their Philippine based families during the Christmas season. It gained ahead against the Asian currencies, with a 19 percent rise against the US Dollar, high yield, cheap stock market and a mild policy towards the Philippine Peso. Despite this, many of those factors have already changed. The central bank cut interest rates by 2.25 percent in the past 12 months and foreign investors have avoided risky markets, plagued by the Subprime mortgage crisis. ''The more uncertain growth environment, higher oil prices and slower remittance growth should mark the pace of the peso gains lower,'' said Yen Ping Ho, a strategist at JPMorgan Chase Bank. The Philippine Peso is set to fall in the midst of a possible recession in the US and growing prices at the bowser.
How about Philippine exports? The bulging Philippine Peso has already been blamed for a sharp reduction of exports during November 2007, effectively widening the trade deficit gap. Combine this with a further reduction in the economic growth of The Philippines' main trading partners Japan and the US. The outlook for the Philippine Peso and its economy looks bleak in the long term.
In terms of yields, the Philippine borrowing rate has already hit a 15-year low of 5.25 percent after the four interest rate cuts in the year 2007. The Philippine central bank is set to follow suit with the unexpectedly large rate cut of 1.25 percent last month by the US Federal Reserve. ''With the borrowing rate at 5.25 percent and biased downward, it will potentially erode the peso's status as a high yielding currency,'' said Christy Tan, a strategist at Bank of America. The Filipino Peso's yields are already heavily disadvantaged compared to Indonesia's 8 percent borrowing rate and India's 6 percent borrowing rate.
The Philippine Peso is set to fall in forex trading, already losing its top position against the Chinese Yuan and the Malaysian Ringgit, despite hitting an 8-year high at 40.5 Philippine Peso per US Dollar on January 15. Other Asia-pacific currencies have had mixed results in forex trading amidst concerns over the weakening US economy. The Philippine Peso traded at 40.65 per US Dollar from 40.50 Peso per Dollar in February 1. The US Dollar was up slightly at 1.4189 Singapore dollars to the Dollar on Friday from 1.4166 the week before. The Japanese Yen traded fell to 107.37 Yen to the US Dollar compared with 106.34 Yen a week earlier. Despite Australia's wide advantage in its yield, it is set to have a range bound week due to concerns on the US. The Australian Dollar is currently hovering in the middle of the 89 US cents mark. Perhaps we will see another brief improvement on the Philippine Peso performance, riding on the backs of homebound Overseas Filipino Workers (OFWs) coming home during the holiday seasons?
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