Peso weakens as strong US PMI data temper June Fed cut bets
THE PESO dropped against the dollar on Tuesday after better-than-expected US manufacturing data pushed back rate cut expectations.
The local unit closed at P56.315 per dollar on Tuesday, weakening by six centavos from its P56.255 finish on Monday, Bankers Association of the Philippines data showed.
The peso opened Tuesday’s session weaker at P56.35 against the dollar. Its worst showing was at P56.41, while its intraday best was at P56.30 versus the greenback.
Dollars traded rose to $1.21 billion on Tuesday from $847.15 million on Monday.
“The peso weakened anew as the stronger-than-expected US manufacturing report pushed market views over the first US rate cut further into July,” a trader said in an e-mail.
The US manufacturing purchasing managers’ index (PMI) data also resulted in a generally stronger dollar on Tuesday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The US dollar hit its highest in almost five months on Tuesday as stronger-than-expected economic data caused investors to cut their bets on a June rate cut, boosting the currency, Reuters reported.
The dollar index rose to 105.1 on Tuesday, its highest level since Nov. 14, adding to sharp gains on Monday after US data unexpectedly showed the first expansion in manufacturing since September 2022. It last stood at 105, unchanged from Monday.
US manufacturing grew for the first time in 1-1/2 years in March as production rebounded sharply and new orders increased, but employment at factories remained subdued amid “sizable layoff activity” and prices for inputs pushed higher.
The survey from the Institute for Supply Management (ISM) on Monday suggested the sector, which has been battered by higher interest rates, was on the mend, though risks remain from rising raw material prices.
While the manufacturing rebound is a boost for the economy’s growth prospects, the rise in raw material prices suggested goods inflation could pick up in the months ahead. Goods deflation was the key driver of an inflation slowdown last year.
The ISM said its manufacturing PMI increased to 50.3 last month, the highest and first reading above 50 since September 2022, from 47.8 in February. The rebound ended 16 straight months of contraction in manufacturing, which accounts for 10.4% of the economy. That was the longest such stretch since the August 2000-January 2002 period.
A PMI reading above 50 indicates growth in the manufacturing sector. Economists polled by Reuters had forecast the PMI would rise to 48.4. The ISM and other factory surveys had grossly overstated the weakness in manufacturing, which has been constrained by higher borrowing costs.
Financial markets expect the Federal Reserve to start cutting rates in June after hiking its policy rate by 525 basis points since March 2022 to the current 5.25%-5.5% range.
The Fed will next meet on April 30 to May 1 to review policy.
For Wednesday, the trader said the peso could depreciate further due to a likely strong US job openings report.
The trader sees the peso moving between P56.20 and P56.45 per dollar on Wednesday, while Mr. Ricafort expects it to range from P56.20 to P56.40. — A.M.C. Sy with Reuters
