Peso on P60:$1 watch

Fitch Solutions [link] says that the PHP/USD exchange rate could exceed P60:$1 “if the newly elected president opts for very aggressive protectionism policies that take markets by surprise.” Fitch Solutions added that the uncertainty could push the US Dollar to “another all-time high”, and that if that happens, “BSP intervention in the FX market will prove ineffective.” The peso’s value relative to the dollar has fallen more than five percent since September, and more than 18% over the past four years. Fitch noted that its original forecast called for the peso to “strengthen by end-2024”, but admits that its projection was “based on a Harris victory that simply did not materialize.”

MB bottom-line: The models used by analysts to make these projections have to make some basic assumptions to limit the number of moving pieces, but I just found it hilarious (and refreshing) for Fitch to come out and say they f’d it up. At least the updated guidance (basically, “we don’t know what’s going to happen”) tracks more closely to how their previous estimates fared against reality’s actuals. Just to clear things up a bit, “protectionism” is when a government attempts to protect its domestic industries from foreign competition by taxing the foreign imports. Trump’s proposed policy to apply sweeping tariffs to goods imported from China and even close trading partners like Canada is that tax, and tariff policy is protectionist in nature. Even without the Trump stuff, the ?60:$1 threshold was already vulnerable to the possibility of a shrinking interest rate differential between the two countries. Recent news in the US has several banks speculating that there may not be as many (or any) interest rate cuts in FY25 due to the performance of the US economy, and indeed, there have been calls for the Federal Reserve to begin rate hikes again to contain the inflation caused by that economic performance. 

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