THE PESO is likely to weaken this week as bets of another Federal Reserve rate hike this year may be reaffirmed during its policy meeting, and also due to likely positive US data on second quarter gross domestic product (GDP), home sales, and orders of durable goods to be released in the next few days.
The local currency closed at P50.71 per dollar on Friday, gaining 17 centavos from its previous finish of P50.88.
Week on week, however, the peso was six centavos weaker from its P50.65-a-dollar close last July 14.
Traders and analysts said the peso may depreciate against the greenback as the US central bank holds its policy meeting.
Land Bank of the Philippines (Landbank) market economist Guian Angelo S. Dumalagan said the peso may strengthen on Monday amid lingering effects of the European Central Bank’s hawkish policy stance, as well as likely positive pronouncements during President Rodrigo R. Duterte’s second State of the Nation Address (SONA).
“On Monday, the dollar might initially depreciate, tracking its decline last Friday evening amid the hawkish guidance from the European Central Bank. The greenback might also drop, as the peso’s appeal might improve ahead of the likely optimistic speech of the Philippine President Rodrigo [R.] Duterte,” Mr. Dumalagan said in an e-mail over the weekend.
However, the peso’s climb could be reversed as the Fed is expected to adopt a hawkish tone at the close of its July 25-26 policy meeting, backed by strong forecasts of key economic data.
“From Tuesday onwards, the dollar might again gain momentum, fuelled by potentially upbeat US reports on existing home sales, durable goods orders, and second-quarter economic growth,” said Mr. Dumalagan.
“These reports might lend support to the US Federal Reserve’s likely hawkish tone during its policy meeting this week. While the US central bank might not hike interest rates again this month, it might continue to affirm its plan to adjust interest rates once more before the year ends,” he added.
The Federal Reserve will announce plans to shrink its more than $4 trillion balance sheet in September, according to a Reuters poll of economists who also said the central bank will wait until the fourth quarter before raising rates again.
Results in the survey are in line with what Fed officials have hinted at in recent weeks, even as they are split on the outlook for inflation and how the lack of it might affect the future pace of interest rate hikes.
A trader interviewed separately said the peso may weaken on dollar demand. “Maybe a bit lower. I still feel that…traders will be buying the dollar on dips.”
Mr. Dumalagan forecasts the peso-dollar pair to trade between P50.55 and P50.95 this week, while another trader estimates a P50.40 to P50.90 range.
BDO Unibank, Inc. chief market strategist Jonathan L. Ravelas said the peso may weaken to as low as P51 per dollar this week. “[T]he week’s close at P50.71 highlights the market has the momentum to try the P51.00/P51.25 levels in the near-term… Trading range [this] week is seen between P50.70 — 51.00 levels.” — E.J.C. Tubayan with Reuters
