Peso may weaken vs dollar on expectations of hawkish Fed statement

THE PESO is likely to depreciate this week, on expectations of slower economic growth in the fourth quarter of 2021 and more hawkish signals from the US Federal Reserve at its first policy review this year.

The local unit finished trading at P51.37 per dollar on Friday, depreciating by three centavos from its P51.34 close on Thursday, based on data from the Bankers Association of the Philippines.

It also weakened by 26 centavos from its P51.11-per-dollar close a week earlier.

The surge in oil futures was a major factor for the peso’s depreciation last week, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

While oil prices declined on Friday, oil futures climbed for the fifth week due to tightening supply, Reuters reported.

Both Brent and West Texas Intermediate futures gained around 2% the past week. Year to date, prices have gone up by 10% as investors are still worried on tight supply.

The two crude benchmarks rose to their highest levels since October 2014 last week.

Higher jobless claims in the US also made investors risk averse on Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

US jobless claims for the week ended Jan. 15 rose by 55,000 to 286,000, the highest since mid-October, Reuters reported.

For this week, Mr. Asuncion said the outcome of the first policy review of the Fed on Jan. 25-26 will be monitored by the market.

Median forecasts of a Reuters poll showed analysts expect three rate hikes from the US central bank this year starting in March.

Fed officials have said the US economy is ready for monetary policy tightening amid elevated inflation.

Meanwhile, Mr. Ricafort said the market will also price in fourth-quarter and full-year 2021 gross domestic product (GDP) data, which will be reported by the Philippine Statistics Authority on Thursday. Jan. 28.

A BusinessWorld poll of 18 analysts yielded a median estimate of a 6.5% year-on-year expansion in the fourth quarter.

If realized, this would be slower than the 7.1% in the third quarter. This would also bring full-year growth to 5.3%, which is within the downwardly revised 5-5.5% target of economic managers.

For this week, both Mr. Asuncion and Mr. Ricafort gave a forecast range of P51 to P51.50 per dollar. — L.W.T. Noble with Reuters