THE PESO strengthened against the dollar on Tuesday after a survey by the New York US Federal Reserve showed Americans see stable inflation for the next five years.

The local currency closed at P56.65 versus the dollar on Tuesday, up by four centavos from Monday’s P56.69 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Tuesday’s session weaker at P56.72 per dollar. Its intraday best was at P56.63, while its worst showing was at P56.79 against the greenback.

Dollars traded went down to $1.11 billion on Tuesday from the $1.12 billion on Monday.

“The peso strengthened after the latest New York Fed survey signaled a stable US inflation outlook, dampening views of further US policy rate hikes,” a trader said in an e-mail.

Americans’ overall views on inflation were little changed in August, despite predictions of rising price increases for rent, homes and food, while downgrading their views of their personal financial situations, the New York Fed reported on Monday, Reuters reported.

The Consumer Sentiment Survey for August showed respondents see inflation a year from now at 3.6%, up from July’s 3.5%, while they project inflation three years from now to hit 2.8% versus 2.9% in July. Five years from now respondents see inflation at 3% from July’s 2.9%.

The Federal Open Market Committee will next meet on Sept. 19-20 to review policy.

The Fed hiked borrowing costs by 25 basis points (bps) last month, bringing its target rate to a range between 5.25% and 5.5%.

It has raised rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The peso strengthened on Tuesday as the dollar traded weaker against the Japanese yen, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar was last 0.89% weaker at 146.50 against the Japanese currency after earlier dropping about 1.3% to 145.89, its lowest since Sept. 1.

The dollar was on track for its biggest one-day percentage drop against the yen since July 12.

The dollar index, which measures the US currency against peers including the yen, was last down 0.32% to 104.52, after falling to 104.41, its lowest since Sept. 5. The dollar has climbed for eight straight weeks.

For Wednesday, the trader said the peso could trade sideways ahead of the release of August US consumer inflation data.

The trader sees the peso moving between P56.60 and P56.85 per dollar on Wednesday, while Mr. Ricafort expects it to range from P56.55 to P56.75. — AMCS with Reuters