THE PESO is expected to continue rising against the dollar this week as investors price in US consumer inflation data that bolstered hopes of smaller rate hikes from the US Federal Reserve.

The local unit closed at P54.89 per dollar on Friday, strengthening by 40 centavos from its P55.29 finish on Thursday, Bankers Association of the Philippines data showed.

Week on week, the peso strengthened by 75 centavos from its P55.64 finish on Jan. 6.

The peso opened Friday’s session stronger at P54.95 per dollar. It dropped to as low as P55.18, while its intraday best was at P54.88 against the greenback.

Dollars exchanged went down to $1.368 billion on Friday from $1.458 billion on Thursday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso rose after the dollar weakened against other major currencies following the month-on-month decline in the US consumer price index (CPI).

“A defensive dollar during the first few weeks of 2023 was an extension of the weak dollar trend seen in the [fourth quarter of 2022],” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

The peso closed lower as “the dollar weakened across the board following short US CPI,” a trader likewise said in a Viber message.

The dollar fell on Thursday after a reading of consumer prices fed expectations that the Federal Reserve may have leeway to scale back the size of future interest rate hikes, Reuters reported.

The dollar index hit its lowest level since early June at 102.07 before slightly paring losses.

On Friday, the dollar recovered slightly. The dollar index, which measures the US currency against six others, rose 0.059% to 102.220 but was languishing around its lowest level since June.

The US central bank last year raised borrowing costs by 425 basis points (bps), bringing the fed funds rate to a 4.25%-4.5% range. It will hold its first monetary policy meeting for the year on Jan. 31 to Feb. 1.

For this week, bets of slower tightening by the Fed following the inflation data could boost the peso.

“[The] market will likely watch how Fed speakers will react to the recent data,” the trader said.

“The markets started to position for a 25-bp rate hike by the Fed later this month,” Mr. Asuncion added.

For this week, Mr. Ricafort sees the peso moving between P54.60 and P55.20, while Mr. Asuncion gave a narrower forecast range of P54.80 to P55.

The trader also expects the peso to move between P54.50 and P55.30 against the dollar. — A.M.C. Sy with Reuters