THE PESO may trade sideways against the greenback this week on the back of softer US inflation as well as bets of upbeat key economic reports and ahead of likely hawkish US Federal Reserve minutes.

The local currency closed at P50.98 per dollar on Friday, dropping 18.5 centavos from Thursday’s finish of P50.795 against the greenback. It was the peso’s weakest close in almost 11 years or since it ended at P51.05 per dollar on Aug. 29, 2006.

Week on week, the peso also lost 82 centavos from its P50.16-a-dollar close on Aug. 4.

Traders and analysts said the peso will take its cue from the US inflation report released last Friday, with geopolitical tensions between the United States and North Korea also expected to affect sentiment.

Land Bank of the Philippines (Landbank) market economist Guian Angelo S. Dumalagan said the peso may initially strengthen versus the greenback this week due to weaker-than-expected US consumer price index (CPI) inflation data.

Reuters reported US consumer prices saw a slight uptick last month, fuelled by higher food costs, but was offset by a drop in the prices of other goods, which could signal a benign inflation and could delay the Fed to delay tightening rates by yearend.

The US Labor Department bared the consumer price index inched up to 01.% in July, steady from June’s reading, bringing year-on-year increase to 1.7% last month from 1.6% in June.

“The dollar might initially depreciate this week due to lower-than-expected US inflation,” he said in his weekly outlook, but noted the peso’s drop may be capped on bets of upbeat key US data and hawkish statements from Fed policy makers as shown in its Federal Open Market Committee (FOMC) minutes.

“Early losses might be trimmed towards the end of the week amid expectations of stronger US retail sales and potentially more hawkish comments in the FOMC minutes about the US Federal Reserve’s balance sheet reduction,” Mr. Dumalagan said.

US retail sales data will be released on Tuesday night, while the US central bank’s FOMC minutes from their July policy meeting is set to be released on Thursday morning, Manila time.

Mr. Dumalagan added that the dollar’s anticipated gain against the peso could also be capped by bets of strong US economic growth in the April to June period.

“The greenback’s gain might be limited by likely upbeat Philippine GDP (gross domestic product) growth in the second quarter,” he said. The Philippine Statistics Authority will release official second-quarter GDP growth data on Thursday.

“The factors that could cause a significant reversal in the dollar’s recent upward trend include stronger-than-expected Philippine economic expansion in the second quarter, an upward revision in the euro area’s second quarter GDP growth, and unexpected dovish comments in the FOMC minutes. Geopolitical concerns abroad might continue to introduce volatility in the foreign exchange market,” Mr. Dumalagan said.

The exchange rate could settle within P50.60 to P51.10 per dollar, according to Mr. Dumalagan.

Meanwhile, a trader said by phone on Friday that the exchange rate could see a range of P50.90 to P51.30 this week.

“[This] week, should risk-off sentiment persist, we may see again another new high for the dollar-peso, and maybe could close at P51.50-per-dollar, so we’ll see if tensions happen over the weekend or a turnaround may happen, there could be a reversal on sentiment,” the trader said, referring to geopolitical tensions between US and North Korea after US President Donald J. Trump and Pyongyang traded warnings last week.

“In terms of data, markets will be watching closely on US CPI data as this will be a gauge on how the Fed will react, and I guess that will probably give more reason for the market to buy the US dollar,” the trader noted.

For his part, BDO Unibank, Inc. Chief Market Strategist Jonathan L. Ravelas said the peso may weaken to as low as P51.50 per dollar this week. “Chart-wise, the test of the P51.00 levels put the P51.25–P51.50 levels within striking distance. Continue to see the market to range between P50.70–P51.00 levels in the week ahead.” — Janine Marie D. Soliman with Reuters

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