Peso expected to weaken
THE PESO may slip and continue its downward trajectory versus the greenback as trading resumes today, with traders expecting positive US economic data that may trigger the US Federal Reserve to raise interest rates anew this year.
Before a two-day break, on Monday, the local currency moved sideways, inching up to P51.61 versus the dollar, 15 centavos stronger than the P51.76 recorded on Friday.
“Starting Thursday, when trading resumes, the dollar might strengthen further on account of likely upbeat US data on PCE (personal consumption expenditures) inflation and ADP employment reports that could prompt US policy makers to affirm their prior view of another interest rate hike this year,” Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank), said in an e-mail on Sunday.
ING Bank senior economist Jose Mario I. Cuyegkeng shared the same sentiment, saying in a market report that the inflation and jobs data “are seen to largely support a December rate hike.”
On Tuesday, Reuters reported that PCE inflation, the Fed’s preferred inflation measure, edged up to 0.1% in September. Jobs data will be released later this week.
However, Mr. Dumalagan noted that the impact of potential upbeat economic data may be dampened by US President Donald J. Trump’s appointment of a new Fed chair.
Before departing for his Asian trip, Mr. Trump is expected to name on Friday the new Fed chair to replace incumbent Janet L. Yellen, whose four-year term will expire by February.
“The choice is now seen to be between gradualist Fed Gov. [Jerome H.] Powell, who is seen as continuity of the current monetary policy, and hawkish Stanford Professor John [B.] Taylor,” ING Bank’s Cuyegkeng said.
“If Taylor wins, the dollar could surge, as Taylor is more likely to pursue a more aggressive path of US interest rate normalization than Powell, who like Fed Chair Yellen, is perceived as dovish,” Landbank’s Mr. Dumalagan said.
UnionBank of the Philippines chief economist Ruben Carlo O. Asuncion said markets “are expecting of a more hawkish Fed rather than the status quo with the appointment of Powell.”
Mr. Asuncion and a trader expect the peso to trade between P51.40 and P51.80, while another trader gave a slimmer forecast of P51.50-P51.80. – Karl Angelo N. Vidal
