THE PESO may weaken this week versus the dollar to reverse its upward trend from last week due to likely positive US inflation data on top of the better-than-expected US jobs report released on Friday.

peso_coinsThe local currency on Friday gained 11 centavos to end P50.16 against the dollar on Friday from its P50.27-per-dollar finish on Thursday.

Week-on-week, the peso also strengthened from its P50.50-a-dollar close on July 28.

Analysts said the movement of the local currency this week will primarily take its cue from US data due to the lack of fresh leads at home and other major economies.

“The dollar might recover from its fall last week after US labor reports on non-farm payrolls and unemployment came out upbeat in July 2017, lending support to views of another US rate hike before the year ends,” Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said in an e-mail over the weekend.

“The rise in US Treasury yields last Friday evening might also improve the greenback’s relative appeal against the peso,” he added.

US employers hired more workers than expected in July and raised their wages, signs of labor market tightness that likely clears the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio.

The US Labor Department said on Friday that non-farm payrolls increased by 209,000 jobs last month amid broad-based gains. June’s employment gain was revised up to 231,000 from the previously reported 222,000.

Average hourly earnings increased nine cents, or 0.3%, in July after rising 0.2% in June. That was the biggest rise in five months.

On a year-on-year basis, wages increased 2.5% for the fourth straight month.

The US dollar and bond yields climbed while stocks on Wall Street rose modestly on Friday, following the stronger-than-expected US jobs report.

Benchmark 10-year US Treasury notes fell 10/32 in price to yield 2.2637% from 2.228% late on Thursday.

Although the economy is near full employment, wage growth has not been strong in part because many of the jobs being created are in low-wage industries. Last month, restaurants and bars added 53,100 jobs.

July’s monthly increase in earnings could, however, offer Fed policy makers some assurance that inflation will gradually rise to the US central bank’s 2% target.

Economists expect the Fed will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its next policy meeting in September. The Fed bought these securities to lower interest rates in the wake of the 2007-2009 financial crisis.

Sluggish wage growth and the accompanying benign inflation, however, suggest the Fed will delay raising interest rates again until December. It has increased borrowing costs twice this year and its benchmark overnight interest rate is in a range of 1% to 1.25%.

A local trader agreed, saying that despite the positive jobs report last Friday, the possibility of another policy hike by the US Federal Reserve this year may seem cloudy given the mixed US economic data that came out for the past months.

“I don’t think the market will be happy for the surprise for the upside that’s not that significant,” a trader said in a phone interview on Friday.

“We were already thinking that the range will probably trend higher, but not quite. The theory is that they will hike one more time, but market doesn’t believe that for now given the mixed data we have,” he said.

“It looks as of now that it’s quite difficult for now to hike another time this year, plus the fact that the [Fed], by September this year, I think, will announce the tapering of their balance sheet,” the trader added.

Moreover, Mr. Dumalagan said the dollar may appreciate anew at the latter part of the week from likely positive US inflation reports, but may be tempered by strong local and Chinese trade data.

“The dollar might again appreciate on Friday, fuelled by likely upbeat US data on producer and consumer price inflation. Stronger price gains on both the consumer and producer sides could further improve the likelihood of another US rate increase this year,” he said.

“Any improvement in risk appetite due to significantly stronger Chinese trade report as well as upbeat Philippine industrial production and trade data might partly reduce the greenback’s appeal and limit the peso’s projected decline,” Mr. Dumalagan added.

The trader expects the local currency to trade within P49.80 to P50.30 versus the greenback. Mr. Dumalagan, on the other hand, sees the peso-dollar pair at the P50 to P50.50 range this week. — Elijah Joseph C. Tubayan with Reuters