The peso could be further strengthened against the dollar this week due to low inflation and central banks’ expectations for further lower interest rates.
The Philippine Bankers Association showed that the local sector closed at P55.62 per dollar on Thursday, up 15.1 from P55.771 on Wednesday.
The peso also added 12.5 Centavos to the completion of the match on May 30 from P55.745-A.
The Philippines’ financial markets were closed on Friday (June 6) due to the Eid holiday.
“After the latest benign inflation data, the dollar exchange rate correction is slightly lower,” said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. in Viber’s message.
The government reported on Thursday that headline inflation in the Philippines fell to 1.3% from 1.4% in April, compared with 3.9% a year ago in the same period.
May printing is the lowest inflation rate in five and a half years or since 1.2% released in November 2019.
This also marks the 10th month of slowdown and inflation settlement in the 2-4% target range.
Inflation was 1.9% in the first five months, below the low end of the annual target of Bangkok’s Sentral Ng Pilipinas (BSP).
Mr Ricafort added that the peso last week also rose in the huge dollar weakness, even in a slight recovery in green.
Although data showed more than expected compared to last month, despite data showing higher than expected, it rose against major currencies on Friday after U.S. job growth in May, suggesting the Fed may wait longer to lower interest rates.
Employers added 139,000 jobs in May, less than the 147,000 jobs added in April, but earnings forecasts in Reuters polls for economists exceeded 130,000.
The dollar rose 0.95% to 144.87 against the yen and increased 0.26% to 0.822 against the Swiss franc. According to the data, green extends the benefits of both secure currencies.
The U.S. currency has made a second consecutive harvest on the yen and Franc, but so far the currency has still dropped by about 8% and 9% so far, both of which have declined against both currencies.
The uncertainty of President Donald J. Trump’s tariff policy and the prospect of negotiations with trading partners, including China, deficit spending and tax bills considered after the U.S. Senate passed the House House and the trajectory of recent economic data, the pressure on the money is depressed.
The U.S. dollar index measures the green index of a basket of currencies including the Japanese yen and the euro rose 0.53% to 99.20, but is expected to lose once a week.
Mr. Trump and Chinese leader Xi Jinping held a rare leader appeal on Thursday as tensions on Tit-Tat tariffs appear to be easing. The dollar rose 0.23% to 7.191 compared to the Chinese yuan at sea.
Mr Ricafort said this week, the peso may continue to recover against green greens, as a benign inflation environment will open the door to further reductions in BSP.
BSP Governor Eli M. Remolona (Jr.) also said there were cuts on the table at the Monetary Commission’s June 19 meeting.
Central banks have cut borrowing costs by 100 basis points since the easing began in August.
Mr Ricafort added that PESO will receive a seasonal increase due to the summer vacation this month and school-related expenses.
“Locally, the peso can get some support from May’s strong international reserves (GIR) and low-inflation prints, which boosts market confidence,” said John Paolo R. Rivera, senior fellow at the Philippine Development Institute.
The latest central bank data shows that the country’s dollar reserves rose 4.6% year-on-year to a three-month high of $100.65 billion by the end of February.
Mr Rivera said the Peso movement would “be likely affected by external factors, such as market responses to the latest economic data on U.S. inflation and employment, and any forward guidance ahead of the next policy meeting.”
Fed policymakers have shown they are in no hurry to lower interest rates, and Friday’s government report shows that the labor market is far from shocked amid huge trade policy changes, Reuters reported.
Financial markets have been betting that the Fed will wait until September to lower interest rates and reduce borrowing costs by December. After Jobs reported, they adjusted their bets to a three-rate that could be cut by the end of the year.
“However, the ongoing geopolitical risks and uncertainties in global trade, including tariff development, may still have an impact on investor sentiment and trigger some volatility,” Mr Rivera added.
Mr Ricafort expects the peso to trade between P55.40 and P55.90 this week, while Mr Rivera says it can move in the low P55 range. – Luisa Maria Jacinta C. Jocson and Reuters
