7.21.2020

Falling Dollar Exchange Rate Of Late

Falling Dollar Exchange Rate Of Late



I have been seeing expats talking about why the Peso is strengthening lately against the Dollar.

I will get back to this post with sources later, but I wanted to lay out for now what I think may be the reason.

The Philippines has been taking on a lot of debt recently and the stated reason is Coronavirus response.

The proceeds from these foreign loans have been delivered to the Philippines in the form of US Dollars.

This is driving the Philippines' Dollar reserves to record levels.

More Dollars in the Philippines means that each Dollar is worth less relative to the Peso.

But this is likely only temporary.

These loans must be repaid...in Dollars. This will gradually drive the Dollar up against the Peso.

If Dollar remittances are negatively impacted by Coronavirus , then that may also drive the Dollar up.

The near term may show more weakening of the Dollar, but soon (barring economic collapse of the US) the Dollar rebounds with vengeance.

The good news is that the FED has signaled that it will not be using negative interest rates, so with rates already as low as they can go that part of dollar weakness hopefully is stabilized and the rate can only go up, which will strengthen the dollar (but only after 2021?).

The US is debasing its currency, but every nation is in that boat to one degree or another, so maybe that part of the equation matters less. Then again this may be what drives the dollar much lower if the printing accelerates and the US economy takes a bigger hit than is expected. 

Another reason to believe the dollar will rebound is the fact that there is a huge dollar shortage right now globally that is expected to almost double by December.

Just my opinion (which is subject to change).

If you have an opinion or information please share. 

UPDATE 7-23 Proof


Proof of what is causing dollar fall:
The Philippines’ dollar reserves inched up to another historic high in June thanks to inflows from the government’s overseas borrowings to fund its drive against the coronavirus pandemic, which outpaced its loan repayments.

“The month-on-month increase in the [dollar reserve] level reflected inflows mainly from the national government’s foreign currency deposits with the BSP,” it said. “These inflows were offset, however, by the foreign currency withdrawals made by the national government to pay its foreign currency debt obligations.”

The rising dollar reserves bode well for the strength of the peso also market watchers said that the central bank is not intervening to set the value of the peso.

 

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