Washington’s announcement that it is slapping fresh tariffs on goods produced by forced labor added another layer to global economic uncertainties-fueling the demand for safe-haven dollar assets and dragging the Philippine peso to a new record low on Friday.
Data from the Bankers Association of the Philippines (BAP) showed the local currency closed at P61.847 against the greenback on Friday. This is 9.7 centavos weaker than its previous finish of P61.75 on Thursday.
Jonathan L. Ravelas, senior adviser at Reyes Tacandong and Co., said attributed this to ‘rising crude oil prices as US and Iranian attacks escalated and new tariffs, renewing inflation concerns.’
Asked about how the new tariffs announced by the United States government would fuel demand for the safe-haven currency, Ravelas told the BusinessMirror: ‘In simple terms, tariffs can strengthen the US dollar because they reduce demand for imported goods, which means fewer dollars are sent overseas.’
At the same time, he said, tariffs can push up inflation in the US, making the Federal Reserve more cautious about cutting interest rates.
‘Higher US interest rates relative to other countries tend to attract global capital into dollar assets, boosting demand for the US dollar,’ he added.
For his part, John Paolo R. Rivera, Senior Research Fellow at Philippine Institute for Development Studies (PIDS) said the peso’s drop to a new record low was largely driven by ‘external factors.’
‘Geopolitical tensions and trade policy uncertainties have also contributed to risk aversion, putting pressure on emerging market currencies, including the peso,’ Rivera told this newspaper on Friday.
Moving forward, the PIDS senior research fellow said the peso may remain under pressure in the near term as long as global uncertainties persist.
‘But I expect movements to remain broadly market-driven rather than disorderly,’ added Rivera.
Within the trading day, the peso traded from as strong as P61.78 to as weak as P61.85 per dollar.
According to the Office of the United States Trade Representative (USTR), Washington announced that failure to impose and effectively enforce a prohibition on the importation of goods produced with forced labor would warrant a 10 percent or 12.5 percent tariff on 60 trading partners, subject to ‘certain product exemptions.’
The USTR said the top 60 US trade partners cover 99.4 percent of US imports.