Impact of Global Economic Events on USD to PHP Exchange Rate :- As a key economic indicator, the exchange rate between the US Dollar (USD) and the Philippine Peso (PHP) shows how strong the economies of the two nations are in comparison. Numerous international economic events have an impact on it,
Impact of Global Economic Events on USD to PHP Exchange Rate
including shifts in commodity prices, geopolitical developments, and monetary policies in addition to the release of economic statistics. Comprehending the ways in which these variables combine to impact the USD to PHP exchange rate is crucial for individuals, investors, corporations, and policymakers involved in global trade.
1. US Economic Information and Policies – Rates of Interest:
The USD usually gains strength when the Federal Reserve raises interest rates because higher rates draw in foreign investors looking for larger returns. Lower rates, however, may make the USD weaker.
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Indicators of the Economy: The USD can be strengthened by positive US economic indicators, such as GDP growth, employment rates, and manufacturing output. Insufficient data may have the opposite impact.
2. Philippine Economic Data and Policies – Economic Growth:
The PHP can be strengthened as an indication of a robust Philippine economy. Slow growth may erode it.
Monetary Policy: The PHP is directly impacted by decisions made by the Bangka Sentra ng Filipinas (BSP), including adjustments to interest rates and monetary policy.
3. World Events- Geopolitical Stability:
In times of risk aversion, investors may gravitate toward safe-haven currencies like the USD due to events like wars, political unrest, or significant policy changes in key economies. Pandemics: Due to government reactions, altered consumer behavior, and economic shutdowns, the COVID-19 pandemic had a major effect on world currencies, notably the USD and PHP.
4. Prices of Commodities – Prices of Oil:
For the Philippines, a sizable amount of its oil is imported. As import costs rise due to rising oil prices, the PHP may lose value as demand for USD rises. On the other hand, a decline in oil prices may help the PHP.
5. Exports and Imports:
Trade Balances The exchange rate is influenced by the US-Philippines trade balance. The PHP can be strengthened by the Philippines having a trade surplus (more exports than imports), whilst a trade deficit might weaken it.
6. Sentiment in the Market
Investor Self-Assurance: Both PHP and USD may be impacted by investor opinion regarding the world economy, whether it is favorable or negative. For instance, investors may seek refuge in the USD during periods of concern in the global economy, which would increase the USD relative to the PHP.
Impact Examples:
Increases in US Interest Rates: The US Federal Reserve increased interest rates several times in 2018, which strengthened the USD relative to a number of other currencies, including the PHP.
The COVID-19 pandemic: 2020 saw volatility in the PHP but a higher USD as investors sought protection due to the pandemic’s unpredictability and economic disruptions. Shocks to Oil Prices: The pandemic’s reduced demand and the oil producers’ price war contributed to the 2020 oil price drop,
which had complicated repercussions for the USD/PHP exchange rate. Reduced import costs for the Philippines due to lower oil prices may have helped the PHP, but this was offset by increased USD and uncertainty throughout the world.
Final Thoughts
A complex web of factors, including trade balances, commodity prices, world events, monetary policy, and market sentiment, interact to affect the USD to PHP exchange rate. For governments, companies, and investors, it is essential to be able to predict and explain changes in the exchange rate by having a thorough understanding of these elements.
