THE PESO is seen to strengthen against the dollar for the rest of the week following dovish remarks from the US central bank even as local inflation picked up slightly in May.
The local unit closed at P51.78 versus the greenback on Tuesday, 13 centavos stronger than P51.91-per-dollar finish on Monday and a six-week high as market participants priced in dovish pronouncements from the US Federal Reserve.
“Still possible for stronger peso with strong support at P51.50-51.70 levels, after some Fed officials (Powell, Bullard) already signalled openness for possible Fed rate cut,” said Michael L. Ricafort, Rizal Commercial Banking Corp. (RCBC) economist, in a text message.
On Tuesday, Fed Chair Jerome Powell said in a speech in Chicago that the central bank will “act as appropriate to sustain the expansion” amid robust labor market and inflation within its two percent target.
He added that the Fed is “closely monitoring” the effects of the trade negotiations between the United States and China.
This comes after St. Louis Fed President James Bullard said a cut in interest rates “may be warranted soon” to help re-center inflation at target and provide insurance in case of a sharper-than-expected decline in the economy.
“Regarding the statements from Powell, the market has already priced in or was already expecting the dovish stance from the Fed,” a trader said in a separate text message yesterday.
Meanwhile, RCBC’s Mr. Ricafort said there may be some “slight upward correction” towards the P52-per-dollar level after latest data showing a slight uptick in inflation and the upward correction in some global bond yields.
The Philippine Statistics Authority reported on Wednesday that inflation accelerated to 3.2% in May from the three percent tallied the previous month as well as the 4.6% recorded in May 2018.
The quicker inflation print, which was also faster than the three percent median in a BusinessWorld poll, was driven by higher prices of food and non-alcoholic beverage as well as water, electricity, gas and other fuel costs.
“(This may be) viewed as temporary due to relatively lower inflation base/denominator in May 2019 that led to slightly higher year-on-year inflation,” Mr. Ricafort said.
He added that price increases could start to ease again in the remaining months of the year due to base effects, especially in the third quarter to early fourth quarter.
“There is still risk-off sentiment in the market but generally emerging markets are somehow a place where investors are flocking to as countries being involved in the tensions are the big economies,” the trader added.
For the rest of the week, Mr. Ricafort expects the peso to trade between P51.60 and P52, while the trader said the local unit will likely range from P51.70-P51.90 today.
Local financial markets were closed yesterday for Eid al-Fitr. — Karl Angelo N. Vidal