MANILA,  February 23, 2004 (STAR) By Des Ferriols - Forex traders expect the peso to weaken further this week as the market anticipates further build-up in the political noise ahead of the May elections.

Currency traders agreed that the peso could hit 56.50 to the dollar this week and some even predicted that instead of recovering, the peso could plummet to as low as 60 before the year is over and regardless of the outcome of the elections.

The Bangko Sentral ng Pilipinas (BSP) is attempting to downplay the market’s reaction to the controversies over presidential candidate Fernando Poe Jr. but this week’s trading will pick up from where it left off last Friday when the peso closed at a new all-time low of 56.35 to the dollar.

"Everyone at the market is anticipating some uncertainty over Poe’s citizenship issue and the possible backlash in case he is disqualified," said a trader for a major bank. "But the main thing is the fact that he is running at all."

One trader confirmed that out of the $197 million worth of dollars traded last Friday, around $160 million were for "buy" positions and only about $37 million sold dollars.

The trader said that at least $30 million of Friday’s trading volume was for the account of the BSP.

"So, today, that’s what we’re starting with–either banks will unload their dollars or hold on to them, depending on what it looks like after the weekend," said one trader.

Traumatized by the Oakwood siege which happened on a weekend, traders said banks were afraid of being caught unprepared in case something happened over the weekend so they had begun stocking up on dollars.

"Banks also want to be prepared for when the market opens on Mondays," the trader explained.

Amid doomsayers in the market, however, the BSP tried to brush off the panic over the plummeting peso, saying that even if the exchange rate hit a new all-time low, this number was not significant from the standpoint of volatility.

"What we don’t want to see is the drastic decline in the exchange rate," Buenaventura said. "The decline has not been drastic, this level is not so far from where we were a week ago so it’s not as volatile as you might think."

Having said that, Buenaventura said much of the perception in the market was being driven by the country’s excessive preoccupation with politics that he said was turning all doomsayers into prophets.

"There are already aggravating factors in the market, especially seasonal factors that are not helped by all these "Unfortunately for us, we have a lot of payments to make this time of year so we are spending dollars to settle some obligations and this happens at a time of the year when dollar remittances are seasonally low," Buenaventura explained.

Reported by: Sol Jose Vanzi

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