Peso sinks to 6-month low vs dollar
THE PESO sank to a six-month low against the dollar on Tuesday on expectations that the Bangko Sentral ng Pilipinas (BSP) could hold rates steady in its next review while the US Federal Reserve remains hawkish.
The local currency closed at P56.31 versus the dollar on Tuesday, weakening by 19 centavos from Monday’s P56.12 finish, data from the Bankers Association of the Philippines’ website showed.
This was the peso’s worst close in six months or since its P56.56 finish on Nov. 29, 2022.
The local unit opened Tuesday’s session at P56.07 per dollar. Its intraday best was at P56.05, while its worst showing for the day was at P56.44.
Dollars traded rose to $1.394 billion on Tuesday from the $1.113 billion recorded on Monday.
“The peso weakened as prospects of June BSP rate hike waned after Governor Medalla hinted at a potentially lower domestic inflation level for May 2023,” a trader said in an e-mail.
Headline inflation in May will be significantly lower than 6.6% in April, putting it on track to return within the 2-4% target by September or October, the BSP said.
BSP Governor Felipe M. Medalla told reporters on Monday that inflation is rapidly easing year on year due to high base effects.
Inflation has been on a downtrend since hitting 8.7% in January. It cooled to 6.6% in April from 7.6% in March, but it was faster than 4.9% a year ago.
For the first four months of the year, average inflation stood at 7.9%. This is still higher than the central bank’s 5.5% full-year forecast and 2-4% target.
The Philippine Statistics Authority is scheduled to release its May inflation data on June 6.
The peso tracked the performance of other Asian currencies on Tuesday amid hawkish remarks from US Federal Reserve officials, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The dollar was last down 0.18% against the Japanese yen at 140.18, Reuters reported. The US currency had hit a six-month high of 140.93 yen before the announcement.
Fed officials said they see the need for further monetary tightening due to higher-than-expected consumer spending in April.
US consumer spending increased 0.8% last month, the Commerce department said on Friday. The core Personal Consumption Expenditures price index increased 0.4% in April after rising 0.1% in March, and was up 4.7% year on year.
Money markets price in a roughly 62% chance that the Fed will raise rates by 25 basis points in June versus a roughly 26% chance a week ago.
For Wednesday, the trader sees the peso moving between P56.20 and P56.45 per dollar, while Mr. Ricafort sees it trading from P56.20 to P56.40. — AMCS with Reuters
