Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Peso to strengthen

Posted by butalidnl on 31 October 2008

The peso-dollar exchange rate has deteriorated to almost 50:1 in the last week. This is largely caused by the financial crisis that has gripped the world recently. And it is natural for many to wonder if this trend will continue; perhaps even reaching 55:1 or thereabouts.I believe that the trend of the dollar strengthening, vis-a-vis the peso and most other currencies, is about to come to an end. Here are some of the factors behind the coming resurgence of the peso.

Rush of funds to the dollar ending
In the last weeks of panic, US’ stockmarket and other portfolio investments have been divested, and when these investments are taken back into the US, they raise the value of the dollar. As long as the panic continues, the dollar will continue to strengthen.
When the stock and capital markets calm down, this flow of dollars into the US will also slow. This would result in the dollar stabilizing ,and then weakening vis-a-vis other currencies.

Overseas Filipino remittances
An additional factor for the peso is that remittances from Overseas Filipinos is expected to increase in November – December, as it usually does. This Christmas peak in remittances usually causes the peso to strengthen vis-a-vis the US dollar.
The present crisis will not negatively affect the jobs of Overseas Filipinos.

Increased Foreign Investments
The Philippine financial system, and as a result the overall economy will not suffer too much from the crisis. The main negative effect will be a possible decline in exports due to the lower demand from the US and other countries. This makes the Philippines a good destination for foreign investments. Already, Middle Eastern companies are increasing their investments in the Philippines. Companies from other countries will likely follow.

The combination of the above factors will result in the strengthen of the peso vis-a-vis the US Dollar.

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