Peso may strengthen as market looks for drivers

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THE PESO may strengthen against the dollar this week as the market waits for new leads. The local currency closed at P55.77 versus the dollar on Friday, weakening by 15 centavos from Thursday’s P55.62 finish, data from the Bankers Association of the Philippines’ website showed. Week on week, however, the peso appreciated by nine centavos from its P55.86 finish on June 16.

The local unit opened Friday’s session at P55.60 per dollar. Its weakest showing was at P55.775, while its intraday best was at P55.55 against the greenback. Dollars traded jumped to $1.063 billion on Friday from the $767.4 million recorded on Thursday. The peso fell after Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said a rate cut might be possible in January or February if inflation eases to below 3%, Rizal Commercial Banking Corp. Chief Economist said in a Viber message.

The BSP kept its policy rate at 6.25% for a second straight meeting on Thursday, as expected by 15 economists in a BusinessWorld poll held last week. The central bank raised borrowing costs by 425 basis points from May 2022 to March 2023 to help bring down inflation.

Mr Ricafort added that the peso was also dragged down by a stronger dollar after US Federal Reserve Chair Jerome H. Powell backed more rate increases at a “careful pace” and as hikes by several central banks fueled global growth concerns. The dollar index, which measures the currency against six rivals, rose by 0.372% to 102.4, Reuters reported. Against the yen, the dollar was up 0.85% at 143.1 yen, its strongest level in more than seven months.

Mr Powell said on Thursday the central bank would move interest rates at a “careful pace” from here as policymakers edge towards a stopping point for their historic round of monetary policy tightening, Reuters reported. The Fed paused its aggressive tightening cycle for the first time in its June 13-14 review after hiking for 10 straight meetings by a cumulative 500 bps since March 2022 to a range between 5% and 5.25%.

For this week, Mr Ricafort said the peso could strengthen as markets await Mr Powell’s remarks in a discussion hosted by the Bank of Spain on Tuesday. The local unit could also move depending on US jobless claims and personal consumption expenditures data to be released this week. For this week, Mr Ricafort sees the peso trading between P55.45 and 55.95 per dollar.