THE PESO weakened against the dollar on Monday as investors anticipate more rate hikes from the US Federal Reserve due to mixed producer inflation data released last week and as the Bangko Sentral ng Pilipinas (BSP) sees a wider balance of payments (BoP) deficit this year.

The local currency ended at P55.65 against the greenback on Monday, dropping by 28 centavos from its P55.37-a-dollar close on Friday, based on data from the Bankers Association of the Philippines.

The peso opened Monday’s session weaker at P55.40 per dollar, which was already its intraday best. Its weakest showing for the day was at P55.67 versus the greenback.

Dollars traded dropped to $683.95 million on Monday from $944 million on Friday.

A trader said on Monday that the peso declined due to a stronger dollar amid mixed US data.

“The dollar strengthened not only against the peso but other currencies as well. This can be attributed to the positive PPI (producer price index) in the US last Friday, which pointed to more persistent price increases and ultimately keep US rates higher,” the trader said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said in a Viber message that the monthly rise in US PPI was “higher than expected” and could support further Fed hikes.

The US PPI for final demand rose 0.3% last month and increased 7.4% annually, while the PPI for October was revised up to 0.3% from 0.2% as previously reported, the US Labor department said on Friday.

While the data showed inflation slowing over the last 12 months, the monthly rise fueled concerns over prices as this could cause the Fed to keep rates higher for longer.

Hawkish Fed bets caused the dollar to climb on Monday. The dollar rose 0.35% against the Japanese yen to $137.05.

Against a basket of currencies, the US dollar index inched up by 0.12% to 105.18.

Fed policy makers are now expected to raise rates by just 50 basis points (bps) at their Dec. 13-14 meeting to a range of 4.25% to 4.5% following four straight 75-bp hikes.

The US central bank has hiked borrowing costs by 375 bps since March.

“The dollar-peso exchange rate corrected higher…after the Bangko Sentral ng Pilipinas estimated a wider BoP deficit and lower gross international reserves (GIR) for 2022,” Mr. Ricafort added.

The country’s BoP position is now expected to yield a deficit of $11.2 billion this year or equivalent to -2.8% of gross domestic product (GDP), the BSP announced on Friday, bigger than the previous projection of a $8.4-billion gap (-2% of GDP) announced in September.

Latest BSP data showed the country’s BoP stood at a $7.8-billion deficit in the January-September period, wider than the $665-million gap in the same period last year.

Meanwhile, the country is now expected to end the year with dollar reserves worth $93 billion, equivalent to seven months’ worth of import cover, lower than the previous forecast of $99 billion (7.5 months). GIR was at $93 billion at end-November.

Mr. Ricafort said trading for the rest of the week will be driven by November US consumer price index data to be released overnight, as well as the upcoming Fed and BSP meetings, as policy makers could give hints on their future moves.

The BSP is set to review its policy settings on Dec. 15, where the majority of analysts expect a 50-bp increase.

Mr. Ricafort expects the local unit to move from P55.50 to P55.75 per dollar on Tuesday, while the trader gave a wider forecast range of P55.15 to P55.75 for the next two days. — A.M.C. Sy