Peso sinks to six-week low as US-China deal boosts dollar
THE PESO sank to a six-week low on Wednesday as the dollar got a boost after the United States and China reached a deal to extend their tariff truce.
The local unit closed at P55.885 per dollar, weakening by 5.5 centavos from its P55.83 finish on Tuesday, Bankers Association of the Philippines data showed.
This was the peso’s worst close in six weeks or since it finished at P56.145 against the greenback on April 29.
The peso opened Wednesday’s session slightly stronger than Tuesday’s close at P55.80 against the dollar. Its worst showing was at P55.90, while its intraday best was at P55.78 versus the greenback.
Dollars exchanged went down to $1.15 billion on Wednesday from $1.23 billion on Tuesday.
“The dollar-peso ended higher after the US and China agreed to a framework deescalating trade tensions. But the pair was capped on caution ahead of the US CPI (consumer price index) release,” a trader said in a phone interview.
“Talks between the US and China extended into their second day in London, with a Treasury official saying the teams were trying to iron out technical details,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Philippine financial markets are closed on June 12 (Thursday) for the Independence Day holiday.
Stock markets and the dollar gave a guarded welcome on Wednesday to the latest signs of progress in trade talks between the United States and China, while waiting for more detail of what was decided and whether it would stick for long, Reuters reported.
Bond investors were also hunkered down for a reading on US inflation that could show the early impact of tariffs on prices, and a Treasury auction that will test demand for the country’s debt.
In London, negotiators from Washington and Beijing said they had “agreed a framework on trade” that would be taken back to their leaders.
US Commerce Secretary Howard Lutnick said the implementation plan should result in restrictions on rare earths and magnets being resolved, but again offered no specifics.
Investors in US stocks, who have been badly burned by trade turmoil before, remained cautious, with S&P 500 futures and Nasdaq futures both down 0.2%.
Asian and European shares were slightly more positive, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.6% and the STOXX benchmark for major European shares gaining 0.14%.
The reaction in currency markets was equally muted, with the dollar strengthening slightly against the Japanese yen to trade at 145.05. The euro edged down 0.1% to $1.1422, nudging the dollar index up to 99.091.
Data on US consumer prices for May might also show some initial upward pressure from tariffs, though analysts assume it will take a few months to fully show in the series.
Median forecasts are for the headline consumer price index to rise 0.2% and the core 0.3%, which would nudge the annual rates up to 2.5% and 2.9%, respectively.
Anything higher would be a setback to hopes for more rate cuts from the US Federal Reserve and could see bonds sell-off. Markets imply little chance the Fed will ease at its meeting next week or in July, but have priced around a 60% chance of a move in September. — A.M.C. Sy with Reuters
