Peso may drop on bets of Fed and ECB rate hikes
THE PESO may depreciate versus the dollar this week as the market expects more aggressive tightening from the US Federal Reserve and the European Central Bank (ECB) in an effort to clamp down on soaring inflation.
The local unit ended at P53 per dollar on Friday, shedding 5 centavos from its P52.95 finish on Thursday, data from the Bankers Association of the Philippines showed.
This is also the peso’s lowest level in three and a half years, or since its P53.10 print on Dec. 20, 2018.
The peso opened Friday’s session at P52.97 against the greenback. Its weakest showing was at P53, while its intraday best was at P52.925 versus the dollar.
Dollars exchanged increased to $949.3 million on Friday from $732.62 million on Thursday.
Market sentiment weighed on the peso as global crude oil prices posted new three-month highs of over $120 per barrel, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Brent crude prices ended the week at $120.07 a barrel at 1456 GMT. While US West Texas Intermediate crude stood at $118.55 a barrel.
US consumer prices also accelerated in May as oil and food prices soared, leading to the largest annual inflation print since 1981.
US inflation surged 8.6% last month, based on the report of the Labor department.
The inflation report was announced ahead of an anticipated second 50-basis-point rate hike from the US Federal Reserve on Wednesday.
For this week, the dollar may also strengthen as investors price in a hawkish European Central Bank (ECB), said UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion in an e-mail.
The ECB said on Thursday that it would raise its benchmark interest rate by 25 basis points on July 21, a first since 2011. It will hike again on Sept. 8 unless the inflation outlook improves.
Incoming Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla also shared his sentiment of a continued interest-rate increase in June and August to curb inflation. These successive hikes will lift the benchmark rate to 2.75% from 2.25%.
Philippine Inflation quickened in May by 5.4%, driven by soaring food and transport costs, preliminary data from the Philippine Statistics Authority showed.
It was the second straight month that inflation zoomed past the BSP’s 2-4% target band.
For this week, Mr. Ricafort gave a forecast range of P52.80 to P53.20 per dollar, while Mr. Asuncion expects a tighter band of P52.70 to P53.00. — Keisha B. Ta-asan with Reuters
