ASIAN currencies, including the peso, are expected to remain under pressure in the near term as the dollar stays firm, supported by geopolitical tensions and a cautious stance from the US Federal Reserve, MUFG said.
“For Asian currencies, we expect a cautious start to the week, amid a pickup in geopolitical risks that could keep USD strength in play in the near term,” the Japanese financial group said in a market note.
MUFG said geopolitical risks had intensified, encouraging investors to stay defensive and favor the dollar.
These include worsening protests in Iran, lingering political tensions in Venezuela following the capture of its leader by the United States and renewed global uncertainty after US President Donald Trump threatened to annex Greenland.
Against this backdrop, the outlook for Asian foreign exchange markets remains guarded, it said. Dollar strength could persist in the near term, weighing on regional currencies.
Among major Asian currencies, the Japanese yen was identified as the weakest performer. MUFG said the currency softened even before reports emerged that Japanese Prime Minister Sanae Takaichi was considering calling a snap election.
The prospect that an early election could strengthen the prime minister’s position and increase the likelihood of additional fiscal stimulus. This has raised market concerns about Japan’s fiscal debt path, reinforcing a bearish view on the yen and pushing Japanese long-term government bond yields higher.
In Southeast Asia, the report highlighted Malaysia as a relative bright spot, while the Philippine peso is expected to continue to weaken amid the ongoing corruption scandal.
“Local factors such as fiscal policy concerns matter for the likes of IDR and PHP, and partially explains their underperformance,” MUFG said.
“Nonetheless, it’s important to note that the fiscal drivers are different, with a sharp slowdown in government spending in the Philippines due to corruption issues in flood control projects key over there,” it added.
The peso hit a fresh all-time low last week, dropping to P59.355 against the dollar as the market priced in the possibility of further BSP rate cuts.
Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. has said that they were not worried about the movements of the local currency. He noted “tremendous pressure to defend the peso” but said “we ignore that.”
The currency weakened by one and a half centavo on Monday to P59.26:$1, a result Rizal Commercial Banking Corp. chief economist Michael Ricafort said came as the dollar continued to strengthen against major global currencies amid geopolitical uncertainties.
It opened at P59.22:$1 and moved within a range of P59.17 to P59.28. Volume reached P887 million, down from the previous P1.234 billion.
