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
Hey Bob I've been watching it to . 😥 ..sending money to the family was starting to cost a lot but as u can see it is getting a little better ..I hope it goes up to 60 pesos hee hee 😆
Hi Phil R. – P60 would be nice… I don't expect we'll see that for some time, though! 😥
Hi Bob – good to see your projection. I think (not that I'm any expert) your analysis seems sound. I hope you're right.
I've been watching the rate lately, as it directly affects our payment, and it's been holding steady or inching slowly upward. It broke 43 briefly at lunchtime (for me) today, but has settled back down to 42.70.
Hi Randy C – Let's keep our fingers crossed! I hope that it will continue to inch upwards!
Your more optimistic than I Bob,..My main concern at the moment is the lack of true leadership potential of any of the current candidates. McCain would be wise to pick Romney for VP, Obama or Hillary? If either of those two clowns get elected I'll be in the RP the next day !!
Has also improved against the English £
diped below 80 now its pretty steady at 83 pesos.
helps me if it gets weaker as thinking of buying a condo.
hi bob. most of the propertys we bought were in the 56 peso range but the ones we were still paying on when the peso droped realy hurt,even in the us . i think if the peso goes to 46 thats the time to buy again. bob the question to you is , how long in your opinion do you think the peso will stay stable at around 44 through 46?
Hi Brian – McCain's biggest problem from what I can see is that he really doesn't know much about the economy, and he even admits that! He needs to choose a VP who knows something about how to manage the economy, no doubt there! I have never voted Democrat in my life, although I kind of like Obama a bit, I probably like him the best of the three that are remaining, I guess.
Whatever happens, I hope that the dollar strengthens!
Hi graham – Yeah, I'd say that you might want to watch movements in the Peso for a while before making that purchase! It might pay to wait it out.
Hi jerry smith – It's hard to say, and really anything can happen. I think, though, that it might take a couple of years before we reach a stable dollar in the 44 to 46 range.
by the way bob , i saw the picture of your great steak, and i was so hungry. do you recomend a great all you can eat in davao. my wife will be home next week and later on and she wants to treat her family to a great dinner in davao. thanks bob.
Hi jerry smith – For an all-you-can-eat buffet, I have a few recommendations:
1. Marco Polo Hotel – Cafe Marco. They usually have an excellent buffet. The price is in the P500/head range.
2. Apo View Hotel – Entree. This is a relatively new restaurant, and I always enjoy their buffets there. The price is also in the P500/head range.
3. Victoria Plaza Parking Lot – Probinsiya. Probinsiya is more of a native food buffet, and it's much less expensive, around P199 per head. It's not as classy as the other two places, but it's a darn good meal though, if you enjoy native type foods.
bob its funny how close you are on top of the dollar. just yesterday my realestase agent called me on sunday and said the market is moving and about the same day you have good news on the dollar and the peso. i believe you are on top of your game. i also think we all can trust our investments in the philippines on your wisdom
Hi jerry smith – Ha ha… thanks for the compliment. You know what? I even wrote this article last week! It only posted today. Actually, though, I am not a professional, so whatever you read as far as financial news here is just my opinion. I have been around the Philippines for quite a while, though, so my opinion is based on experience. But, don't make any life decisions based on my amateur opinion, my friend! 😆
Let me modify this a bit, Jerry…. you can take my comments in #11 quite literally! When it comes to restaurant recommendations, I'll stand behind what I say! 😆
Bob
I feel you are right with the peso rate but do not trust my opinion. I have been very bad at guessing the direction of the rate. 😐
Hi Larry – Ha ha… you are qualifying your statement – Just like me! 😆
All that any of us can do is watch and see what happens, and I suppose, hope for the best!
Bob
With the present exchange rate how much monthly income in dollars would be needed for some one from the US to live comfortably in the Philippines?
One of the major foreign banks thought the exchange rate will end around 43p to one dollar, and its almost there now. There is now no more talk of it hitting 38-39p to the dollar, and my opinion I think it hover between 42 to 44p per dollar for this year. In the future it is really tough to say. I believe Lucion Tan said a few years ago he saw the peso hitting 100 to the dollar. 15 years ago the peso exhchange was around 28 to the dollar. I believe it is really hard to foresee where the exchange rate will go because so many things are involved and the U.S. has huge trade and budget deficits and huge financial obligations in the future (social security and medicare) and the Philippines will continue to get large remittances from the OFW's.
Hi Larry – That is not an easy question to answer, because we all enjoy different lifestyles. What might be comfortable to you might be extravagant to me. What is miserly to me, might be opulent to somebody else. What I have been telling people lately is that I believe that a single person, or possibly a couple can have a decent life here on $1,500 per month. Some would need more, some would need less. If you have a family with children, you certainly need much more than that, with school and such to pay for. I know that for Feyma and I, we could not make it on $1,500 per month.
Hi Neil – There is still some talk about P38 or P39 to $1, but not nearly like a few months ago. Just last week, the Central Bank issued a statement that the Peso could get back to P40:$1 by June! I seriously doubt that such an exchange could happen in a matter of two weeks, though.
hi bob – on #8 post. im not going politk here. just wanted to say that, this may be the closest we've ever been on the US spectrum 😆
Hi macky – I had to think for a while, but I believe I understand. You mean that this is the closest that you and I have been on the political spectrum, right? Yeah, you are probably right! 😆
hi bob – that's right. i tried keeping it short so i deleted the word "political". i figured you'd get what i mean. didn't want to trigger any sirens in this post.
welcome back, by the way. i must say that i really relate to your curiosity & wandering spirit. i would be loving exploring mindanao if i was there. at least i know who to ask when i get my chance to drive my island.
Talking about food buffet, last time we were in Davao we dined at Grand Men Seng hotel, they had at that time a wery nice buffet, but I do not recall the price.
Hi macky – believe it or not, your "welcome back" comment is more timely than you know! I took another trip this past weekend, which I haven't written about yet! Stand by on a report about that trip, which was also to a spot in Mindanao that I had never visited before. This particular journey had special significance for me too.
Hi Preben C – I think that the Grand Men Seng buffet is in the P450 to P500 range. Not sure why, but I've never been a big fan of the Grand Men Seng hotel. I can't specifically point out anything bad about the place, just for some intangible reason I dislike it.
Hi bob –
I know how foreigners living in the philippine and filipino dollar earner wishes to have a higher exchange rate, but for me, i'd like to see the peso exchange rate to be like what it used to be 30 years ago, life back then was not as hard as it is today, i remember when the peso was just 7:1. living in the philippines was very comfortable and few filipinos actually go aborad for work.
In my opinion, a high exchange rate will only benefit the people who earn dollars just like the OFW, the import/export business people and the foreigners living in the P.I. but the entire country will suffer the most from lossing the value of the money. The philippine debt will grow bigger and bigger,thus the result will be more poverty.
I am still hopefull to see the old life in the philippines, i know getting the peso to 7:1 is impossible but who knows. maybe not in my lifetime to see it.
Hi dans – I understand your feelings, and appreciate them. However, this site is mostly focused toward foreigners who would like to live in the Philippines, and thus, most of those who visit the site are more interested in finding value for their (foreign) money. Thus, that opinion is probably more represented here.
I hope you understand… no offense intended.
Bob
i worked (we talked about it one time) in South Africa (a beautiful country) and the exchange rate to the uk pound was 3.5 when i arrived,……… 2 years later it was 12.
i moved to zambia, 2 years later and the rate for local currency exchange (kwatcha to US$ ) was (black market) say 10 to the US dollar, when i left it was around 7,000 (yes 7,000), legal rates didn't exist, the currency had collapsed
currency fluctuation relative to 2 countries (US and Philippines in thjis case) will relate primarily as you say to the strength of the economies in the medium to long term. As foreign Philippine residents, it is in our short term interests for a stronger rate for our currency at home against the peso, but in the longer term i think it is important for the Philippine econmomy to show some resiliance and not to be always on the slide
As for your predictions for the future i agree with your view and also your reasoning, with the one proviso that the US economy has major problems, but i don't agree with one of the above 'posters' Barack Obama comes across to me (a brit) as a sensible alternative candidate, but this is from the perspective of an outsider
as for your predictions Bob, lets see
HI bob.I dont know what turned the dollar around ,cant say im not happy.The truth is the leading economic conditions have not changed in the U.S.More and more jobs gone off shore.Record deficeit.lending institution bail outs,and China holds the bonds to pay for Irac.If china should dump those bonds the dollar wiil drop like a rock.Stopping the war would be a step in the right direction.And then balancing the budget would do the trick.Sorry i forgot the trade imbalance.but for now 42p aint bad.
Hi rick b – You are right that there are major problems in the US economy, I certainly don't deny that. Hey… I think I'll be seeing you tomorrow…..
Hi Jim – I feel that it is not an improvement in the US economy that has made the current exchange rate turn-around. I feel, instead, that there have been a number of negative economic happenings in the Philippines. We'll see what happens.
Gasoline and food continue to be the real issue for us here in USA along with a constant blare of news channels pushing gloom, that is what impacts attitudes. The politicians aren't going to do much about either of these concerns as long as environmental restrictions keep a strict prevention for oil exploration or refinning. Americans will just get used to $4 to $5 a gallon and move on, but with some change. With all the political promises going on out there, the budget will continue to balloon and that isn't good for the dollar.
I would agree Bob, be cautiously optomistic about the dollar. If Obama gets all the spending he wants (some $300 billion extra a year), it will likely put some more downward pressure on the dollar as debt increases…but our debt has been increasing under Bush at a similar pace.
I really don't know who I'll vote for, Obama's very socialized system bothers me a lot…but more and more spending and open borders from McCain isn't very reassuring either.
Joe
Hi Joe – I do hope that the politics will resolve itself in a way that is good for the economy. On Obama, the reason I am leaning his way is that, while I don't necessarily agree with most of his policies, I think that he is level-headed. Also, for the USA to elect a black president, I feel would be an historic thing, and it is something that I think is a good thing. Also, I don't care much for McCain or Clinton… so it's hard to decide where else to go! 😆
Since I rise and fall on the Peso rate ike you, Bob, I hope the peso weakens even more. But as you and a couple others mentioned, it's really a guess .. the dollar certianly isn't stronger as much as the peso has weakend. i just watch an interview with Warren Buffett and he feels the dollar is going to stay weak for some time You know the dollar is down 16 or 18% against the Yen this past year and it hasn't gained any strength there … and it is still within a penny of par with the canadian dollar.
Time will tell .. it was just 43.185 on Tahoo a few minutes ago, I'll go to sleep and dream of 56 to the follar.
You know the funny thing with all this rising and falling? When I first visited the Philippines in 1999 the peso was 43 or 44 … the more things chnage the more they stay the same it seem.s
I will keep my comments brief. I have no idea what the peso/dollar will do so I won't speculate-I just like to see it favor the dollar like most of us. The political talk has piqued my interest however. I admit the President is important but its really congress that controls the purse strings-lets watch who we elect there. In my opinion that holds more value to our future than who the president is. All candidates tell us what we want to hear-then reality sets in and congress controls that reality. No one seems to like McCain on this site but I sure like his talk about a flat tax. If he could deliver on that promise I would vote for him. Ron
i just wanted to add my opinon on the matter based on the simple rules of supply and demand
the rise of the peso is due to the high dollar supply
there is over a billion dollars entering the PI every month and increasing
to put it in perspective i think it takes google a year to make a billion dollars
and the RP receives that much every month for doing absolutely nothing tax free
as long as the remmittance keeps increasing the dollar will continue to weaken long term
remember not too long ago there was a coup attempt at the Manila Peninsula an explosion at Glorietta ayala mall and a ZTE scandal
yet still the dollar continued to drop even with all that bad news
i read your reasons why you think the worse is over but the problem with your reasons is that it never addressed why the dollar dropped in the first place
keep in mind what happened to the Bear Stearns and how many more of that is coming
only time will tell if this article is an accurate assessment of the currency or a momentary lapse of denial
But how about inflation in the Philippines? If the inflation is bigger or equals a gain of the dollar you win nothing.
Hi Dave Starr – Yep, it's funny, because the Peso is now what it was when I moved here too…. but I sure did like that 56:1!
Hi Ron LaFleur – Good comment there… I would love it if a flat tax were put in, but they have been talking about that for decades now, and never do anything about it… we can only hope!
Hi zatara – there is a little more to it than just supply and demand, although that is a component. The reason why the dollar has dropped are mostly political, not supply and demand. If your theory that supply and demand were the reason, then why has the dollar dropped in places where the supply has remained constant? Virtually no remittances go into the EU like what happens in the Philippines, yet the dollar has lost more than 40% against the Euro. So, it is plain to see that your reasoning is not completely accurate on this one.
Thanks for sharing your opinion, though.
Hi Luc – You are right on that – to an extent. Think about this, though… the inflation is here whether the dollar rises or falls. If we have the inflation with the dollar strengthening, that is much better than the opposite! 😆
True, but is it not so : lower value of the pesos = higher inflation?
All raw materials are in dollars. The price of oil is already 129 dollars. When the pesos goes down it makes the situation even worse. Rice has to be imported. Again, it's in dollars.
The US can afford more or less fluctuations of the dollar since all prices on the world market are in dollars. As 1 US politician once said, "the value of the dollar is your problem, not ours".
Hi Luc – I think we are agreeing here… this is almost exactly what I said in the column. The only thing I am adding is that it would be worse for me if the dollar was falling on top of the inflation. 😆
Hi Luc – I just wanted to add one thing… actually, not all raw materials are in dollars. Locally sourced raw materials are not in dollars, and the inflation rate for things like most foodstuffs and such are not dollar related inflation.
Just a thought.
bob –
just want to add, foddstuffs grown locally are affected by the oil product, it needs to be transported from point A to B and some other stuff to grow it like fertilizer and insectisides, irrigation has to be accounted too, it uses electricity or gas for the motor, so i can say that the local products prices are affected by the dollar too.
just a thought.
Bob –
You sound like you know a thing or two about economics. I think the dollar has bottomed for now, too. We're at a sort of hinge point. I watch interest rates in the USA.
I know Obama would be bad for me and my family as he has proposed raising capital gains taxes (I'm a stock investor) to 35% and he promises to tax corporations to death (I work for a corporation.) He's promised to roll back the 2006 Bush tax cuts (including the $1000 per child tex credit.) Obama as president would hasten my exit from the U.S.
I'd concur with your assessment of $1500 for a single in the Philippines. Wifey has speculated on $3000 for the four of us if our house is paid off 100%. So that's my goal for investing: $3000 per month income!!
Hi Bob.
This collumn is a lot about economics, and I wonder when a foreiner lives in the RP and lives on let say, a pension from abroad, will that pension be taxed in RP?
The reason for my asking is that when we move there my pension will be taxed in my homeland (sucks), but I hope it will not be taxed in RP too.
Hi dans – Foodstuffs grown locally do have minor affects from oil prices, but when compared to imported items or things like plastics that are made virtually 100% from oil, the affect of petroleum on local food products are very minimal.
Hi Thomas Shawn – Economics was my major in college, so it is kind of an area of interest for me, although I am not employed in the field and never have been. I believe your investment goals are right on target, and I wish you luck in achieving those goals!
Hi Preben C – A foreigner living in the Philippines is not taxed on any income that he earns from foreign sources. So, you can earn all you want, be it income from investments, employment, pension or whatever, and as long as it comes from outside the Philippines, no tax will ever be due on that.
Well I'm personally hoping for a 45:1 rate when I come back from Alaska… makes my earnings there worth more to me. I'm really planning on building a house in the next year and I need to squeeze out all the pesos I can get for my dollars. As for living in the Philippines I think before I left my wife and I were down to around $800 or less a month in costs. It will be negligable after we move into the room above the store so YAY I can start saving money.
Hi BrSpiritus – The Peso has really lost steam in the past few days, and is falling a lot faster than I anticipated. I do think that your 45:1 ratio that you are looking for is possible, especially in the longer term. With the fall of the Peso in the past few days, I told Feyma last night that I am really hoping to see 50:1 again.
Hi Bob,interesting comments and i'm sure most of us are keeping a keen eye on xchange rates.Recent news from a top analyst in Singapore is the growing danger of recession in S E Asia.For a while now i have suspected that Global recession is around the corner unless we see oil and food prices stabalize at a realistic level.However, the oil price is currently being driven up by speculators as much as demand.Regards Chas.
Hi chas – I believe everything you said is very correct. You thinking and mine are seeming to mesh.
Hi Bob, I am sorry to dissapoint you but it is not the $US that is getting stronger but the P. peso that is getting weaker. In my opinion the $US economy will get a strong "aftershake" from the housing disaster and now the economy will start slowing down, so the dollar will also get weaker. And during Christmass the peso will again fly high as billions of pesos will be bought by the OFW.
Hi Markus – Yeah, it is actually a combination of dollar strength and peso weakness. The dollar has also gained against the Euro a bit, so that does show some strength. I do agree that the Peso is weak right now, and I don't think I ever said otherwise.
Thank you for joining the conversation.