THE PESO weakened against the dollar on Tuesday following the faster-than-expected July inflation print which supported views of another rate hike from the central bank.
The local currency ended Tuesday’s session at P53 versus the greenback, 15 centavos weaker than the P52.85-per-dollar finish on Monday.
The peso opened the session flat at Monday’s close of P52.85 versus the greenback, which was also its best showing for the day. Meanwhile, it slipped to as low as P53.015 per US currency.
Dollars traded dropped to $681.5 million from the $892.9 million that switched hands the previous day.
In a text message, UnionBank of the Philippines Chief Economist Ruben Carlo O. Asuncion said the peso’s depreciation yesterday “may have been from the [faster]-than-expected July 2018 inflation level.”
Headline inflation continued to accelerate in July, rising to 5.7%, faster than the 5.2% print in June and 2.4% in the same month last year.
This was near the top end of the 5.1-5.8% forecast range by the Bangko Sentral ng Pilipinas (BSP) and above the 5.5% median inflation estimate in a BusinessWorld poll of economists last week.
“I think the market is still waiting for a BSP move this Thursday,” Mr. Asuncion added.
“In terms of the pair, there’s still downside risk since we’re expecting the hawkish rate hike from the BSP this week, and then the inflation print supported that hawkish view,” a foreign exchange trader said in a phone interview.
The monetary authority is widely expected to raise its benchmark rates anew this week, with some economists looking at a 50-basis-point increase to ease price pressures.
BSP Governor Nestor A. Espenilla, Jr. told reporters in a text message on Tuesday that the inflation print last month remains consistent with the central bank’s expectation of elevated inflation this year that will ease to its 2-4% target range by 2019.
“We will consider all the latest data updates in determining the strength of our follow-through response in the upcoming policy meeting of the [Monetary Board] this Thursday,” Mr. Espenilla said.
The BSP has already raised rates twice this year, announcing 25-basis-point hikes in its May and June meetings.
Meanwhile, the trader added there were no aggressive offshore offerings throughout the day.
“We also saw some listing of offers by local banks. I think this is more of corporate demands pushing the peso higher,” the trader added.
For Wednesday, Mr. Asuncion expects the pair to trade between P52.80 and P53.10, while the trader sees a P52.90-P53.10 range.
ASIAN CURRENCIES DOWN
Meanwhile, other Asian currencies weakened against the dollar on Tuesday as revived US sanctions on Iran and escalating trade tensions between Beijing and Washington tempered appetite for emerging market foreign exchange.
The worsening trade war between China and US supported the dollar index against a basket of six major currencies, which rose to a near three-week high of 95.515, before pulling back slightly to 95.337.
Meanwhile, Washington reintroduced sanctions on Iran at 0401 GMT on Tuesday, amid opposition from Europe, China and India, adding to investor concerns.
China’s yuan extended losses even as the country’s central bank took measures to rein in sharp declines in the yuan.
The People’s Bank of China (PBOC) on Friday introduced requirements for banks to keep reserves equivalent at 20 percent of their clients’ dollar forward positions, effectively making it more costly to short the yuan. — Karl Angelo N. Vidal with Reuters

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