THE Philippine peso experienced its worst day in 16.5 years on Wednesday, dropping to P55 to the United States dollar.

The local currency lost 29 centavos from the previous day’s closing price of P54.77 to reach $55.06:$1. It has not been this soft since Oct. 27, 2005, when it closed at 55.08:$1.

“The latest peso exchange rate movements partly due to the healthy downward correction in the PSEi (Philippine Stock Exchange index) today,” Michael Ricafort, chief economist at Rizal Commercial Banking Corp., commented.

The index fell on Wednesday after rising for three straight trading days, considered a healthy correction, by 42.22 points, or -0.7 percent, to close at 6,303.19, still among one-week highs, in line with the United States stock markets’ healthy downward correction from two-week highs after the net gains rally since late last week, he explained.

“The latest currency movements also came after the US dollar corrected higher versus major global currencies . . . ,” Ricafort added, pointing to softer US consumer confidence data, continued hawkish signals from some Fed officials, but also indicating that a soft landing is still possible.

He also noted the upward correction in global oil prices to one-week highs, but underscored that they are still hovering around one-month lows and the most recent easing in the benchmark 10-year US Treasury yield.

Nicholas Antonio Mapa, senior economist at ING Bank Manila, emphasized that there was “broad dollar strength as risk sentiment took a hit after disappointing US confidence numbers out last night.”

Considering the policy divergence between the BSP and the Fed, he added, the peso was also in trouble.

“Although BSP has signaled rate hikes are in the pipeline, some investors may be worried that the pace is not quite as fast to quell red-hot inflation and keep in pace with the Fed’s projected rate hike schedule.”

The Bangko Sentral is also mentioning that they will allow the currency to find its level, which may have further strained nerves, Mapa noted.

The BSP previously said the recent weakening of the peso, along with other currencies in the region, is consistent with a more aggressive monetary policy normalization in advanced economies, particularly that by the US Federal Reserve (Fed).

BSP Deputy Governor Francisco Dakila Jr. said the current performance of the local currency is more of a phenomenon associated with the strength of the dollar than it is anything that can be attributed to more domestic factors.