THE PESO could strengthen this week on expectations of continued dollar weakness amid the release of several US economic reports that could reinforce bets of a pause in the US Federal Reserve’s tightening cycle.

The local currency closed at P54.40 versus the dollar on Wednesday, appreciating by 9.50 centavos from Tuesday’s P54.495 finish, data from the Bankers Association of the Philippines’ website showed.

Meanwhile, week on week, the peso depreciated by four centavos from its P54.36 close on March 31.

Philippine financial markets are closed from April 6-10 for non-working days in observance of Holy Week and the Day of Valor.

For this week, the peso could strengthen on expectations of a weaker dollar, Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

“Dollar weakness will persist as the recent slew of US economic data, led by several inflation measures as the policy lag effects of the Fed’s cumulative rate hikes last year take hold, suggests the US Fed may opt to end their tightening cycle soon,” Mr. Asuncion said.

“Our traders expect this run of rapid Fed rate hikes may soon end, and with it, the beginning of the end of a historic dollar bull run,” he added.

With other major central banks expected to continue hiking rates, this could result in more downward pressure for the dollar, Mr. Asuncion said.

Meanwhile, a trader said that peso-dollar trading this week could be affected by US jobs data released last week.

US Treasury yields and the dollar climbed in an abbreviated session on Friday after employment data for March indicated the labor market remained tight last month, raising the odds that the Federal Reserve has at least one more rate hike in store, Reuters reported.

Nonfarm payrolls increased by 236,000 jobs last month, the Labor department said, very close to the 239,000 expected by economists surveyed by Reuters.

Data for February was revised higher to show 326,000 jobs were added instead of 311,000 as previously reported. The unemployment rate dipped to 3.5% from 3.6% in the prior month.

Benchmark 10-year note yields were up 12.3 basis points (bps) to 3.413%, from 3.29% late on Thursday.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 17.2 bps at 3.993%.

The dollar index rose 0.137%, with the euro down 0.09% to $1.091.

A closely watched US inflation report this week could help settle one of Wall Street’s most pressing questions: whether the market has correctly pegged the near-term trajectory for interest rates.

The March consumer price index report will be released on April 12. March producer price index data will also come out on April 13.

Following last month’s banking crisis, investors have become more convinced the Fed will cut rates in the second half to ward off an economic downturn.

But the central bank’s more restrictive rate outlook sees borrowing costs remaining around current levels through 2023. That view could gain support if this week’s inflation reading shows a strong rise in consumer prices even after aggressive Fed rate hikes over the past year.

For this week, Mr. Asuncion expects the peso to move between P54.10 and P54.80 against the dollar, while the trader expects it to trade from P54 to P55. — A.M.C. Sy with Reuters