Philippine peso at 17-year low, risk aversion hurts Asian stocks

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• Asian FX down on strong dollar, Indian rupee at record low
• South Korean won hits 13-year low ahead of BoK meeting
• Sri Lankan sovereign dollar bond hits another record low

The Philippine peso hit a near 17-year trough on Tuesday, with most Asian emerging market currencies weakening further, as a global decline in risk appetite on growing fears of a recession and fresh COVID-19 curbs in China weighed on sentiment.

The peso <PHP=> fell 0.5% to hit its lowest since September, 2005 and the won <KRW=KFTC> slid to its lowest since April, 2009. The Indian rupee <INR=IN> collapsed to yet another record low against the dollar <=USD>.

Narrowing interest rate differentials have weighed heavily on most Asian currencies in recent months, with the peso down nearly 10% this year.

The Philippine central bank is under pressure to accelerate policy tightening to tame inflation, which surged to a nearly four-year high in June.

“If you look at Asia Pacific in general, currencies that have been the weakest are those where policy rates have not closed the gap with inflation,” said Robert Carnell, head of research for Asia Pacific at ING.

The Bangko Sentral ng Pilipinas recently said it was paying close attention to “strong depreciation pressures” on the peso, adding they are prepared to raise rates by 50 basis points at its August meeting.

Mounting fears of a global recession have forced investors to flee stocks and riskier Asian assets in favor of bonds and the greenback. Markets are closely monitoring U.S. consumer price data due on Wednesday, with economists polled by Reuters expecting the index to print an 8.8% annual rate for June.

Views that the U.S. Federal Reserve will hike rates faster and further than its peers has contributed significantly to the dollar’s unrelenting surge this year.

The safe-haven currency has also been supported by worries about growth elsewhere, with China in particular implementing strict measures across multiple cities to contain fresh COVID-19 outbreaks.

The yuan <CNY=CFXS> steadied around a one-month low as the euro <EUR=EBS> teetered near parity to the dollar, denting market sentiment and pressuring other non-dollar currencies. China shares <.SSEC> were down 0.8%. [CNY/]

Concerns over global economic growth led to a sell-off in Asian shares. Shares in Taiwan <.TWII> settled 2.7% lower, while South Korea <.KS11> slipped 1%.

Adding to investor caution was Bank of Korea’s monetary policy meeting on Wednesday. A Reuters poll found that the central bank is set to deliver its first-ever 50 basis point rate rise, turning up the heat on a rate-hiking campaign as inflation tops a 24-year high and has yet to peak.

The won is the worst performing emerging market currency in the region this year and has lost around 10% in value against the dollar.

“When Asian currencies are weak, Korean won will typically be among the weakest,” Carnell said.

Meanwhile, a sovereign dollar bond issued by Sri Lanka <US85227SAW61=TE> hit yet another record low, after the country’s president and prime minister offered to resign following violent protests.

Highlights

• Philippines May trade deficit widens to $5.7 bln story
• Malaysian ringgit <MYR=> down 0.2%, hits lowest since March, 2020
• Taiwan stocks close at lowest since December, 2020

—Reporting by Harish Sridharan in Bengaluru; Editing by Rashmi Aich