Peso slips after U.S. Fed hike

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Metro Manila (CNN Philippines, June 14) — The peso continued to slip against the dollar, as the greenback got a boost from the U.S. Federal Reserve's decision to raise interest rates.

The local currency on Thursday closed at ₱53.27 against the dollar after reaching an intraday low of ₱53.37.

"The expectation of a faster pace of hikes in the U.S., evidenced by today's hike is causing a stronger dollar and the further widening of our trade deficit," said BDO Unionbank chief marketing strategist Jonathan Ravelas.

He added that May's foreign portfolio outflows has contributed to the weakness of the peso.

According to the Bangko Sentral ng Pilipinas (BSP), foreign investment portfolios in May was at $1.2 billion, declining by 18.4 percent compared to the same month last year.

The United Kingdom, U.S., Singapore, Malaysia and Hong Kong are the top five foreign investors in the Philippines.

Around 80.2 percent of these investments are in the stock market, while the rest went to government securities.

"Outflows for the month of US$1.4 billion were 29.3 percent higher compared to the US$1.1 billion level in April due mainly to investors' reaction to renewed geopolitical tension between the U.S. and China coupled with continuous net foreign selling of PSE-listed securities since February of this year," the BSP said in a statement.

The stock market posted a 0.97 percent decline Thursday, with all sub-indices in the red except for holding firms at the end of the trading day.

The Fed on Wednesday (Thursday in Manila) raised federal funds interest rates, which help determine the rate for borrowing money, to a range of 1.75 to 2 percent.

"The main takeaway is that the economy is doing very well," U.S. Fed Chairman Jerome Powell said at a news conference. "Most people who want to find jobs are finding them, and unemployment and inflation are low."

The unemployment rate in the United States is at 3.8 percent, the lowest since 2000. Meanwhile, inflation is also creeping higher.

The shift in U.S. monetary policy is meant to keep the economy from overheating. 

U.S. monetary policy makers said that they expect a total of four interest rate hikes within the year.

READ: U.S. Fed raises interest rates and signals faster hikes on the way  

On the other hand, the Monetary Board, the monetary policy arm of the Bangko Sentral ng Pilipinas (BSP) is set to have another meeting on June 20.

Asked if the BSP would announce another interest rate hike to temper inflation and address the weakening peso, Ravelas said that this is not likely.

"I don't think so," Ravelas said in a text message.

READ: BSP raises interest rate to address rising prices

A stronger dollar affects the Philippine trade deficit, which is at $12.20 billion year-to-date. A trade deficit happens when a country imports more than it exports.

The Philippine trade deficit is partially driven by the administration's aggressive infrastructure spending plan, as the nation imports more goods and paid for them in dollar than what it earned from exports.