THE PESO is expected to move sideways this week as investors pocket profits ahead of the Holy Week break and amid brewing tensions between the US and China over trade policies.
On Friday, the local currency dropped to close at P52.39 versus the greenback, 19 centavos weaker than its P52.20-per-dollar finish on Thursday, as President Donald J. Trump imposed sanctions on China for trade violations.
Week on week, the peso also slumped from its P51.93-per-dollar finish last March 16.
Guian Angelo S. Dumalagan, market analyst at Land Bank of the Philippines, said in an e-mail that the dollar could move sideways with a downward bias this week “as investors might take profit ahead of the Holy Week break amid heightened concerns over a brewing trade war between the two largest economies in the world — US and China.”
On Thursday, Mr. Trump slapped new tariffs on Chinese goods worth about $50 billion following a seven-month investigation into alleged intellectual property theft.
Following this, the US is also looking at imposing investment restrictions as well as retaliatory actions at the World Trade Organization.
In response, Liu He, China’s top economic leader, warned US Treasury Secretary Steven Mnuchin in a phone call on Saturday that they are ready to defend its national interest.
On Friday, China announced it may launch a “tit-for-tat” retaliation against Washington by imposing tariffs on 128 American products including wine, dried fruits and nuts and steel pipes.
Mr. Dumalagan said these developments “increased worries over a global trade war which could potentially curtail economic growth.”
The trade sanctions came after the imposition of 25% duty on imported steel and 10% tariff on imported aluminum, also directed at Beijing.
However, Mr. Dumalagan noted that the dollar’s potential downward movement may be tempered by the collective view of several American central bankers of at least two more US rate hikes in the coming months of 2018.
According to a report by Bloomberg, Federal Reserve officials Raphael Bostic and Robert Kaplan affirmed their views of three interest rate hikes this year, saying they are open to shift their views.
“My base case continues to be three for the year, and having said that I am also open minded and we’ll see how the year unfolds. It’s certainly possible that that view will get amended,” Mr. Kaplan said.
The Federal Open Market Committee decided last week to raise its borrowing rates, lifting the benchmark overnight lending rate to 1.75% from 1.5%.
This was the sixth time the Fed raised its interest rates since it began tightening its monetary policy from the near-zero or 0.25% in December 2015.
On Thursday and Friday, foreign exchange trading will be suspended for the Holy Week break.
This week, Mr. Dumalagan sees the peso moving between P51.80 and P52.50, while a trader gave a narrower range from P52.20 to P52.50. — Karl Angelo N. Vidal with Bloomberg