THE PESO fell to an over three-year low against the dollar on Monday after US inflation soared to a 40-year high in May, which could prompt aggressive tightening by the US Federal Reserve at its meeting this week.

The local unit closed at P53.30 against the dollar, shedding 30 centavos from its P53 finish on Friday, data from the Bankers Association of the Philippines showed.

This was the peso’s weakest close in over three years or since its finish of P53.59 against the greenback on Oct. 30, 2018.

The peso opened Monday’s trading session at P53.10 against the dollar, which was also its intraday best. It moved within a very narrow range as its weakest showing was its closing level of P53.30 against the greenback.

Dollars exchanged fell to $685.2 million on Monday from $949.3 million seen on Friday.

The local unit weakened as high US inflation could prompt the Fed to raise rates more aggressively, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A trader likewise said in an e-mail that “the peso weakened significantly following the stronger-than-expected US consumer inflation report for May 2022.”

The trader warned that the local currency may fall further ahead of the release of US producer inflation data.

The US consumer price index increased by a faster-than-expected 8.6% last month, the largest year-on-year increase since December 1981, according to US Labor department data released on Friday, showing inflation has yet to peak.

This caused renewed bets of aggressive action from the Fed that could dampen growth prospects for the world’s largest economy. The US central bank will review its policy settings on June 14-15.

Mr. Ricafort added that the peso’s decline was also due to a drop in the local stock benchmark. The Philippine Stock Exchange index sank by 63.03 points or 0.96% to close at 6,467.01 on Monday, while the broader all shares index went down by 37 points or 1.05% to 3,474.93.

For Tuesday, Mr. Ricafort sees the peso ranging between P53.10 and P53.35 against the dollar, while the trader expects the local unit to weaken further and trade from P53.20 to P53.40. — TJT