Fears of Estrada acquittal weaken peso

A possible acquittal of President Estrada at the end of the ongoing Senate impeachment trial triggered fresh concerns yesterday among local banks which opted to gobble up dollars and to take a long position on their foreign exchange holdings.

This resulted in a weakening of the peso which again breached the 50-to-the-dollar level to close at 50.085 to $1.

At the Philippine Dealing System, the peso hit a low of 50.150 during intraday trading before recovering at the end of the session. The local currency closed 11 centavos lower from Wednesday’s close of 49.975 to the dollar.

The peso opened at 49.950 to end at a weighted average rate of 50.071 to the dollar. Total volume traded amounted to $114.10 million.

Foreign exchange dealers said the market is sensing that the impeachment trial of President Estrada may result in an acquittal as the prosecution panel appears to be performing poorly.

"Following such a possible acquittal, the market expects some turmoil that may cause the peso to drop drastically," dealers said, adding that "some are adopting a long position in preparation for a possible steep fall of the peso should the trial result in an acquittal."

Analysts said the peso has not really gained ground against the dollar despite the heavy inflow of dollars from overseas Filipino workers (OFWs) and returning Filipinos abroad or balikbayans.

Since the start of the impeachment trial, the peso has hovered at around 49.850 to the dollar.

Even at its temporary high, the peso did not manage to appreciate back to the 48-to-the-dollar level, traders said.

"The weakness of the peso was mainly due to internal developments as there are no regional factors at present to blame for the fall anew of the peso," one analyst said.

Dealers said the BSP did not intervene at the foreign exchange market yesterday.

"If the President is acquitted, the peso-dollar exchange rate could quickly hit 60 to $1," one dealer said.

Even without the political crisis, forex dealers said, "there are a lot of negative factors weighing down on the peso which include the ballooning budget deficit and rising inflation."