THE PESO climbed to a new three-year high versus the greenback on Wednesday following the release of data showing a narrower June trade deficit and faster inflation in July.

The local unit closed at P49.075 per dollar on Wednesday, appreciating by two centavos from its P49.095 finish on Tuesday, data from the Bankers Association of the Philippines showed.

Wednesday’s close is also the peso’s strongest showing in more than three years or since its P48.95-per-dollar finish on Nov. 11, 2016.

The peso started yesterday’s session at P49.05 against the greenback. Its weakest showing was at P49.08 while its strongest showing was at P49.01 per dollar.

The volume of dollars traded rose to $699.71 million from the $470.35 million  seen on Tuesday.

The peso strengthened “after the narrower trade deficit data,” said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

The country’s trade deficit stood at $1.3 billion in June, lower than the $2.64-billion gap a year ago. the Philippine Statistics Authority (PSA) reported on Wednesday. This, as exports dropped 13.3% to $5.33 billion while imports declined 24.5% to $6.63 billion.

Another factor that affected sentiment on the peso was July inflation data, a trader said.

“The peso strengthened near the P49 level amid the stronger-than-expected Philippine inflation report for July,” the trader said in an e-mail.

Headline inflation picked up to 2.7% in July from the 2.5% in June and the 2.4% seen in the same month last year, separate data released by the PSA on Wednesday showed. This was mainly due to higher transport costs.

Last month’s headline print was closer to the upper end of the 2.2-3% estimate given by the BSP and a tad faster than the 2.6% median in a BusinessWorld poll of 16 analysts last week.

The July rate put the year-to-date average at 2.5%, within the central bank’s 2% to 4% target and 2.3% forecast for 2020.

Today, the peso is expected to decline anew on expectations of a deeper contraction in second-quarter gross domestic product (GDP).

“The local currency is likely to depreciate from expectations of a sudden contraction in Philippine economic growth report for the second quarter due to be released this Thursday,” the trader said.

A BusinessWorld poll last week among 17 analysts yielded a median estimate of a 11% contraction in the country’s second-quarter GDP. This is worse than the downward-revised 0.7% contraction seen in the first three months of the year.

Mr. Ricafort gave a forecast range of P48.95 to P49.15 per dollar today while the trader expects the local unit to move around the P49.00 and P49.20 levels. — L.W.T. Noble