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Tuesday saw HSBC note that they "had.....>

DOLLAR-PHP
DOLLAR-PHP: Tuesday saw HSBC note that they "had been of the view that the PHP
would weaken in '20. Instead, the currency has been one of the very few in EMFX
to advance vs. USD, albeit very slightly. Our view was fixated on stronger
demand for USD by importers due to higher gov't spending & a recovery in credit
demand. However, the COVID-19 shock has subdued domestic demand. USD demand from
the trade deficit is apparently smaller than the USD supply from remittances,
services exports & FDI inflows. Meanwhile BSP has been accumulating FX reserves
at a slower pace than in '19, which we believe is a function of very flush
liquidity in the onshore banking system. The combination of these factors led us
to adjust our USD/PHP f'cast to 50.50 (from 53.00). Nevertheless, we believe the
PHP's resilience will not last forever. Recent outperformance has made the PHP
the most overvalued currency in the region... In addition, moderating nominal
yields & deteriorating fiscal metrics point to a reversal of fortune. We also
assume that the FX policy will not be fully hands-off in tolerating additional
PHP strength. We still see USD/PHP trading at 52.00 by end-'21. Important data
to watch for are the daily FX spot volumes and whether these normalise further."
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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