THE PESO is likely to strengthen versus the dollar this week on expectations that the US Federal Reserve will keep rates low to support the world’s largest economy.

The local unit finished trading at P48.085 per dollar on Friday, shedding 3.1 centavos from its Thursday close of P48.054. It also weakened by two centavos from its P48.065-per-dollar finish on Jan. 15.

The peso dropped against the greenback last week due to risk-off sentiment on higher coronavirus cases in the country, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

New virus cases rose by 2,178 on Friday, based on data from the Department of Health. It increased by 1,797 to 511,679 patients on Saturday, with 33,603 active cases.

For this week, Mr. Ricafort said peso-dollar trading will take cues from the Fed’s policy review this week.

The Federal Open Market Committee will have its first policy meeting for the year from Jan. 26 to 27.

Fed Chairman Jerome Powell said earlier this month that an interest rate hike will come “no time soon” as the country continues to be ravaged by economic problems and the health crisis, Reuters reported.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the central bank may keep supporting the P48-per-dollar level amid a likely slimmer trade deficit and an expected contraction in the country’s gross domestic product (GDP) last year.

A BusinessWorld poll of 18 economists and one institution last week yielded a median estimate of a 9.5% contraction in GDP for 2020 and an 8.5% decline in the fourth quarter.

If realized, the full-year estimate will match the higher end of the government’s -8.5% to -9.5% projection. The Philippine Statistics Authority will report official GDP data on Thursday.

For this week, Mr. Ricafort gave a forecast range of P48.03 to P48.14 per dollar while Mr. Asuncion expects the peso to trade within the P48 to P48.10 band. — L.W.T. Noble with Reuters