THE PESO is likely to weaken versus the greenback this week amid continued geopolitical tensions and as the market awaits the release of local budget deficit data.

The local unit closed at P50.06 per dollar last Friday, appreciating by 11 centavos from its P50.17 close on Thursday, according to data from the Bankers Association of the Philippines.

Week on week, the currency also strengthened by 13.50 centavos from its P50.195 close on June 11.

The peso got stronger on news on the country’s external debt stock, said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp.

The country’s external debt dropped 2.6% to $81.4 billion as of March from the $83.6 billion as of end-December 2019, Bangko Sentral ng Pilipinas data released Friday showed.

However, the debt stock rose by $990 million from its standing as of end-March 2019.

The external debt to gross domestic product (GDP) ratio, which is a solvency indicator, improved to 21.4% from 22.2%.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the peso closed stronger on last-minute demand despite some risk-off sentiment seen in the morning over worries on a possible second wave of coronavirus disease 2019 (COVID-19) infections.

For this week, the market will monitor developments on COVID-19 infections and the continued easing or tightening of restrictions to prevent the spread of the virus, Mr. Ricafort said.

Mr. Ricafort added that tensions between China and India, South and North Korea, as well as the US and China may also impact dollar-peso trading.

US President Donald J. Trump on Thursday again threatened to cut ties with China only a day after top US diplomats told Beijing that Mr. Trump did not consider decoupling the US and Chinese economies as a viable option.

Apart from the trade tensions, the world’s two biggest economies have been dealing with multiple points of friction, with the US accusing China of not being transparent about the outbreak and their differences over Beijing’s moves related to a security legislation on Hong Kong.

In Asia, at least 20 Indian soldiers were killed at their borders in the Himalayan region. China has not released any casualty figures for its troops.

Tensions also heightened in the Korean peninsula last week after North Korea blew up its joint liaison office with South Korea following the North’s threat against defectors that have been sending propaganda leaflets into the North.

Meanwhile, a key data release this week that could impact market sentiment is the budget deficit report, Mr. Asuncion said.

“If the budget balance indeed comes this week, expect the peso to depreciate,” he said.

The budget balance was at a deficit of P273.99 billion in April, reversing the P86.9 billion surplus in the same month of 2019 and bigger than the P59.5-billion gap in March. This was on the back of the surge in state spending for subsidy programs amid the lockdown.

The May budget balance data is set to be released by the Bureau of the Treasury on Tuesday.

For this week, Mr. Ricafort expects the peso to trade within the P49.90 to P50.20 band versus the dollar while Mr. Asuncion gave a P50.00 to P50.30 forecast range. — L.W.T. Noble with Reuters