UK-BASED creditor HSBC believes the Trump presidency will make the US dollar stronger than it is now, while simultaenously weakening emerging market currencies, including the Philippines.
“The election of Donald Trump as the next US president has significant implications for foreign exchange markets. In our view, the USD will now be stronger than we previously anticipated, a reflection of both broader market uncertainty and higher US rate,” HSBC said in its latest Currency Outlook report.
The bank already adjusted its foreign exchange projections in both G10 and emerging economies. It particularly noted that the political climate in the US will be highly influential in the turnouts of the global financial markets.
“For foreign exchange, politics is the new economics. Quantitative easing (QE) has constrained the bond market, distorted equity prices and narrowed yield differentials. This means foreign exchange is uniquely placed to reflect political developments. We have written about currencies being driven by cyclical, structural or political factors. Now the political driver is dominant and uncertainty will remain high. In that environment the USD will prevail and emerging foreign currencies will suffer,” the bank noted.
In the Philippines, HSBC projects the dollar-peso exchange rate at 49.4 by the end of 2016, and 50.7 by the end of 2017.
Cebu Bankers Club immediate past president Maximo Rey Eleccion echoed HSBC’s outlook.
“That is correct. President-elect Trump is saying that he would boost spending. In order to finance, he might resort to domestic borrowings that could potentially increase interest rates. When the US rates increase, some investments here would be pulled out and transferred to the US because of higher returns,” he told Sun.Star Cebu in a text message.
“Initially, we believed the political change could be positive for the Philippine peso, with reforms paving the way for FDI (foreign direct investment) inflows. However, we underestimated (President Rodrigo) Duterte’s change in foreign policy: he has criticized the US–a long-time ally of the Philippines–and has pivoted to China despite previous tension surrounding the South China Sea,” it said.
In addition, the creditor underscored that the heightened political uncertainty could delay FDI inflows coming into the Philippines.
However, it also noted that Trump’s victory can mark healing in the US-Philippines relations, with Duterte appointing Trump’s business partner as the new trade envoy to the US.
On Dec. 3, Trump and Duterte for the first time talked over the phone. Duterte told reporters that the US President-elect mentioned to him that his war on drugs is done “the right way.”
Some international organizations have been critical of the current state of extrajudicial killings in the Philippines, which has led the tough-talking President to lash out at them.