Peso slides as US data bolster hawkish Fed bets

THE PESO depreciated further against the dollar on Thursday as the latest US consumer price index (CPI) data heightened expectations that the US Federal Reserve will keep rates steady at its meeting next week.

The local unit dropped by 21.5 centavos to close at P59.385 against the greenback from its P59.17 finish on Wednesday, data from the Bankers Association of the Philippines showed.

The peso opened Thursday’s trading session sharply weaker at P59.32 per dollar. Its intraday best was at P59.223, while its worst showing was at P59.65, surpassing its latest record-low close of P59.50 logged on March 9.

Dollars traded went down to $1.92 billion from $2.057 billion.

“The peso continued to weaken after the US CPI report for February came in within market expectations, which fueled views of a policy rate hold from the US central bank this month,” a trader said in an e-mail.

US consumer prices rose moderately in February as rents maintained a steady pace of increases, though households paid more for gasoline and at the supermarket and higher costs are in store because of the escalating war in the Middle East, Reuters reported.

The consumer price index report from the Labor department on Wednesday, which also showed underlying inflation muted last month, covered the period before the US and Israel launched strikes against Iran. The attacks at the end of February were met with retaliation by Tehran and have boosted oil prices.

Economists estimated that consumer prices could increase by as much as 1% in March and expected the US Federal Reserve to keep interest rates unchanged next week.

The consumer price index rose 0.3% last month after gaining 0.2% in January, the Labor department’s Bureau of Labor Statistics said. In the 12 months through February, the CPI advanced 2.4%, matching January’s increase, and reflecting last year’s high readings dropping out of the calculation. The increase in the CPI was in line with economists’ expectations.

The US central bank tracks the personal consumption expenditures (PCE) price indexes for its 2% inflation target.

Economists said the tame core CPI readings were unlikely to translate into moderate core PCE inflation gains in February because of different weights and unexpected strength in services prices in the January producer price index report.

January’s delayed PCE price index data due on Friday is expected to show a solid increase in core inflation. February’s PCE inflation data will be released on April 9. Economists forecast core PCE increasing by as much as 0.5% in January, with estimates for February as high as 0.4%.

The peso also weakened against a stronger dollar on growing inflation worries due to rising global crude oil prices as the war in the Middle East continues, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar gained for a third consecutive session on Thursday, staying close to its strongest levels this year as surging crude prices stoked inflation worries, which could potentially force central banks to reassess the need for interest-rate hikes, Reuters reported.

Brent crude futures rose more than 10% at one point to highs of $101.59 per barrel, even after the International Energy Agency on Wednesday agreed to release a record 400 million barrels of oil from strategic stockpiles to combat the spike in crude prices.

Oil market volatility has continued to climb, with Iran saying the world should be ready for crude at $200 a barrel as its military attacked merchant ships on Wednesday, and vessel traffic through the Strait of Hormuz dwindled to a trickle.

For Friday, the trader said the peso could weaken further as the US PCE report could bolster hawkish Fed expectations.

Both Mr. Ricafort and the trader expect the peso to move between P59.25 and P59.50 per dollar on Friday. — A.M.C. Sy with Reuters