January 15, 2025 | 12:00am
If Trump policies surprise markets
MANILA, Philippines — The peso may breach the critical 60 to $1 threshold if the policies of Donald Trump when he assumes the US presidency surprise global markets, according to BMI Country Risk & Industry Research.
In a report, BMI said the peso is expected to trade within the 55.20 to 59.20 range against the dollar this year. But the think tank said the local currency is facing heightened volatility as Trump’s aggressive protectionist stance could exacerbate further depreciation.
“Breaching the 60 to $1 level remains a very real possibility,” BMI said. “If the newly elected president opts for very aggressive protectionism policies that take markets by surprise, the dollar could reach another all-time high,” it said.
The Bangko Sentral ng Pilipinas (BSP) has actively intervened to stabilize the peso against the dollar, but BMI warned that such efforts may prove insufficient if external pressures mount.
The peso’s performance against the greenback reflects ongoing external pressures and market dynamics, which influence emerging market currencies.
The local currency closed at 58.62 to $1 yesterday, strengthening by eight centavos from its 58.70 to $1 finish on Monday.
“For sure, the peso would have traded weaker had the BSP not stepped in to arrest its decline,” BMI said, adding that “the recent decline in foreign reserves confirms our view. If anything, this reflects the BSP’s commitment to keep the currency at around current levels.”
The country’s gross international reserves went down by 1.5 percent to $106.84 billion as of December 2024 from $108.49 billion a month earlier. It was also lower than the $109-billion target set by monetary authorities last month.
The research firm anticipates that the BSP will intervene more actively as US interest rate changes continue to add volatility to the peso.
According to BMI, Trump has promised to implement a 10 to 20 percent blanket tariffs on all goods entering the US. This has prompted the US Federal Reserve to adopt a more hawkish stance
Similarly, market participants have priced in fewer cuts in 2025, leading to the recent bout of dollar strength. BMI projects the Fed Funds Rate to reach 3.50 percent at end-2025 instead of three percent previously.
“But it is still too early to tell if Trump will follow through on his plans. He could still deliver a more watered-down approach to his promises by implementing smaller blanket tariffs as opposed to the 10 to 20 percent he originally suggested. Until more details of his policies are revealed, markets will speculate on his every move,” BMI said.
Nonetheless, any appreciatory pressures for the peso could be constrained by the BSP’s easing cycle. BMI expects the central bank to cut by a total of 75 basis points this year, but monetary authorities could deliver more rate cuts as the economy is in need of support.
“Beyond the near term, we expect the peso to remain on a depreciatory trend as weak fundamentals keep a lid on any significant upside pressures on the currency,” BMI said, citing the country’s wide twin deficits which pose challenges for the currency.
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