I think we've seen the worst

    

May 20, 2008 by Mindanao Bob  
Filed under Bob

My gut is telling me that the worst has already passed.

I’m talking about the currency exchange rates between the US Dollar and the Philippine Peso. Late last year, it was looking like the Dollar was in for more of a fall, but things have begun to recover already, and it’s just a gut feeling, but I think that the worst days of the falling Dollar are behind us, and we are in for a bit of a rebound.

As I write this column, the exchange rate is around P42.8:$1. It has been as low as around P40:$1 in recent months. This year, though, has been a year of rebound for the Dollar so far. I think that it will continue. Of course, we will see fluctuations – sometimes the Dollar will be worth less, sometimes more. The trend, though, in my view, will be for increases in the value of the Dollar.

What leads me to think that the crisis has ended?

• The Dollar never breached the P40:$1 mark. I believe that P40 was a psychological barrier. If the dollar broke below P40, it would have gone into a fairly rapid free-fall. But, it resisted breaching that barrier. The barrier was tested, and it held.
• The political season is upon us in the USA, and I believe the government will try to keep the economy as stable as possible through the elections. After the election, I believe that whoever the winner is will try to regain at least some strength in the currency.
• Many analysts are saying that the Euro has already peaked in it’s value vs. the Dollar, and evidence shows that it has been declining in recent weeks. I believe that the Euro will continue to out-perform the Peso, and if the Euro is weakening against the Dollar, the Peso will follow suit in my opinion.
• In the last few months, I have heard a lot of sentiment about dumping the Dollar and going to the Peso by local business people, and also by many expats in the Philippines. Usually when the crowd jumps on the bandwagon like this, it indicates that the market is already starting to reverse – sentiment is often a contra-indicator of what the economy will do. While the best thing that you can ever do is to “buy low and sell high” – masses of people usually do the opposite – “buy high and sell low.”
• Energy prices are driving a lot of the fluctuations, and the US Economy is a lot more robust than the Philippine Economy. The USA can better withstand higher energy prices than the Philippines can. The same can be said for food as well.
• There is a lot of turmoil in Asia right now – natural disasters. Earthquakes, cyclones and such. These things will tend to soften the economies in the region, in my opinion.

Although I am optimistic about the prospects for the Dollar, I am cautiously optimistic. We have to watch the trends over the coming months to see how things go. But, I am starting to bet on the Dollar. I hope I’m right!

My prediction for the exchange rates? I think that we could see P44:$1 or P45:$1 by the end of this year. I think that we won’t see P50:$1 again for at least a decade, though. P56:$1? That will be a long time before we ever see it again, if ever, unless some kind of major event happens, but that would be unexpected.

What do you think?

photo credit: kevindooley

About the Author:  Bob Martin is the Publisher & Editor in Chief of the Live in the Philippines Web Magazine. Bob is an Internet Entrepreneur who is based in Davao. Bob is an American who has lived permanently in Mindanao since May 2000. Here in Mindanao, Bob has resided in General Santos City, and now in Davao City. Bob is the owner of this website and many others.