P60:$1

FIRST PERSON

- ALEX MAGNO

The depreciation of the peso appears inexorable, driven by factors beyond our control. Our currency's exchange rate is now at the lowest it has ever been. The depreciation threatens to reignite inflation and deepen poverty.

Analysts are quick to point out that it is not that the peso is exceptionally weak; the dollar is exceptionally strong. The American currency has been appreciating against most other currencies the past few weeks.

Wilson Sy, our colleague in this paper, put out a very informative column yesterday. He reproduces tables that show that while the peso's decline has been pretty dramatic, it is not the worst performing currency. Compared to other currencies, the peso's depreciation is just about middling. Major currencies such as the euro and the yen declined more than our peso.

The substantial realignment of currency exchange values happened after Donald Trump won a second term as US president. But the realignment is not because Trump has a brilliant economic policy agenda, but because he does not.

Trump's isolationist and unilateralist impulses create a high inflation scenario for the US. In anticipation, the Fed is likely to postpone any further rate cuts. This is contrary to market expectation.

If the Fed postpones rate cuts, while other countries go on with their schedules for lowering interest rates (having convincingly tamed their own inflation rates), hot money will tend to convert to dollars. It is more profitable to do so. With all the geopolitical crises going on, the dollar is seen as a sanctuary.