Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18
Stock Market Investing 2018 - “I Hope I’m Making a Bad Buy” - 11th Jan 18
S&P 500 Fluctuates As Stock Market May Be Topping, Or Not? - 11th Jan 18
SPECTRE Microprocessor Security Flaw - Big Brother = You - 11th Jan 18
7 Market Forecasts 2018 from the Brightest Financial Minds I Know - 11th Jan 18
It’s Not Enough to Be Contrarian - 11th Jan 18
Stocks That Take One for A Roller Coaster Ride Through the Thick And Thin Of Every Single Investment Made - 11th Jan 18
Police Arrest Tree Protester on Meersbrook Park Road, Sheffield - 10th Jan 18
Stock Market Aggressive Sell Signals - 10th Jan 18
The 2018 Decline in Precious Metals - 10th Jan 18
Gold Hits All-Time Highs Priced In Emerging Market Currencies - 10th Jan 18
TMV : 3X Leveraged Short on US Treasury Bonds - 10th Jan 18
Here are the Key Levels in Gold & Gold Miners - 10th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

The Philippine Peso Squeeze 

Currencies / Forex Trading Apr 18, 2017 - 11:37 AM GMT

By: Dan_Steinbock

Currencies In the first quarter, the Philippine peso depreciated against the US dollar. Internationally, this was attributed to President Duterte’s policies. In reality, it has a lot to do with the expected US rate hikes. But there is a reason why misguided geopolitics now overshadows Philippines.

In the recent quarter, the Philippine peso depreciated by 0.88 percent against the US dollar. It was the only currency in Asia to do so. For the first time since 2009, the peso drifted to 50 per US dollar.


Much of international media attributed the fall to President Duterte and his “unlawful” policies. The number of such reports has increased since last fall and escalated through the spring, particularly in US-based media, including some of the largest global financial news hubs.

At best, these reports reflect an odd discrepancy between the fundamentals of the Philippine economy and the way it is portrayed internationally. At worst, they illustrate a gross misrepresentation of those fundamentals.

The geopolitical peso story

As the peso peaked at 50.40 in early March, international media saw the real culprit in President Duterte. who is “involved in unlawful killings and corruption,” as Bloomberg’s Ditas B. Lopez put it. The headline told the story: “Asia’s ugly duckling of the year is the Philippine peso, thanks to Duterte.”

Actually, this narrative did not start in early 2017 when the Philippine currency began to weaken against the US dollar. It did not reflect news; it proactively shaped news. It began already in September 2016 when peso was still 46 against the dollar. From January 2017 back to September 2016, the Bloomberg author’s Philippine stories included “Southeast Asia's Worst-Performing Currency Is in for Another Tough Year,” “Philippine Peso Completes Worst Month in 16 Years,” “Duterte's Peso Rout Runs Counter to the Booming Philippine Economy,” “Philippine Officials Seek to Soothe Investors Spooked by Duterte.”

Bloomberg was not alone. In the Barron’s (March 22, 2017), William Pesek’s headline tells the story: “Philippine peso’s troubles just beginning. The peso is down 8% and investors are dumping stocks amid doubts about Duterte’s economic agenda.” Here the peso is seen “buckling under the weight of a chaotic and distracted administration," and "lots of body bags, more than 8,000 and counting." The peso’s fall is attributed to “impeachment talk” (about Duterte). In the past investors, were “clamoring for peso assets thanks to predecessor President Aquino’s structural upgrade drive.”

Like many others, Barron’s mistook Aquino’s stated economic goals with his actual achievements. No questions are posed about the dramatic rise of the drug trade under Aquino's watch, the complicity of public officials, and media silence about the drugs. Instead, marginal figures (Gary Alejano) with an anti-democratic mutineer record are presented as “opposition politicians.” Flawed drug wars statistics is quoted as accurate. Senator Leila de Lima is portrayed as a figure of integrity, despite her gross abuse of public office and funds, and cooperation with drug lords. And Vice President Robredo’s UN speech, which penalized her credibility, is presented as testimony of courage.

Most distressingly, most of these accounts are quiet about the alleged Goldberg plan - that is, the alleged regime change plan by the former US Philippines ambassador to replace Duterte - which advocated exploiting the Philippine public and private sector, along with international NGOs and international media, exactly in the way that these reports have done.

Peso among Southeast Asian currencies

As the peso has depreciated against the US dollar, the Bangko Sentral (BSP) has put a positive spin to the story. In this narrative, the relative strength of the peso in the past plus lower inflation explains the currency stability.

The story is largely true. Between 2009 and 2013, the peso strengthened against the US dollar from 49 to 41. In the past quarter, it weakened to 50.

In international media, the fall was compared with the alleged strength of the Japanese yen, Korean won and other currencies. Yet, comparing apples and oranges may not be useful. The peso is an emerging-economy currency; yen and won are advanced-economy currencies. In the latter, per capita incomes are five times higher than in the Philippines.

In Vietnam and Myanmar, per capita incomes are closer to those in the Philippines. In the past years, their currencies have also experienced strong depreciation. In contrast to the peso’s 25% fall, the Vietnamese dong has weakened over 35% since 2009 and Myanmar kyat 55% since 2012.

There is still another problem with the international media accounts about the peso’s fall. It did not happen under Duterte’s watch. Instead, it began in the middle of the Aquino era, with the Fed’s exit from quantitative easing and the first rate hike around 2013 and 2016. That’s when the peso fell from 41 to 48 per dollar. 

Last year, the Philippine current account did shrink to 1%, while the trade deficit soared to a record $25 billion, and the peso depreciated accordingly. Nevertheless, Philippine exports are expected to recover while remittances and business process outsourcing revenues should remain robust.

The stability of the peso has not disappeared. In fact, in early April, when all Asian currencies took hits, the peso bucked the trend by rising on strong net inflows to the Philippines equity market. What this suggests is that investors are looking past the international media narrative and are instead focusing on the probable gains of the Duterte economic agenda.

Strengthening dollar, weakening peso

As the Fed has exited QE and initiated tightening, US dollar hit its 14-year high last fall. It has been fueled by rising government bond yields and the Fed’s anticipated hikes) and expectations of Trump’s fiscal expansion via infrastructure stimulus.

What makes the peso trajectory harder to project vis-à-vis the US dollar is the uncertainty associated with the dollar. As the US must borrow ever more to finance its trade deficit, rising debt is pushing America deeper into the red. In the last quarter of 2016, foreign ownership of US debt outpaced US claims on foreigners by $8.4 trillion, which means a deficit that’s almost half of US GDP.

In contrast, the Philippines continues to enjoy significant long-term economic potential, even though - after months of misguided stories about the Philippine economy - international investors have been spooked by their own media.

As international focus lingers on political controversies associated with Manila's regional rebalancing, the economic promise of the Duterte policies has been ignored. However, that's not about economic fundamentals but about geopolitics.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules