THE PESO will likely strengthen against the dollar this week on the back of expectations of a faster inflation print as well as mixed signals abroad.
The local currency strengthened slightly against the greenback to close at P51.90 last Friday, two centavos stronger compared with the P51.92 logged the previous day, as banks took profit.
Week-on-week, the peso moved sideways from its P51.89-per-dollar finish on Feb. 23.
“The dollar might show significant volatility this week because of potentially mixed signals domestically and abroad,” Guian Angelo S. Dumalagan, market economist of Land Bank of the Philippines (Landbank), said in an e-mail on Saturday.
Mr. Dumalagan attributed the dollar’s volatility to the political noise in the US, a likely “upbeat” Philippine inflation print in February and hawkish comments from the Europe an and Japanese central banks.
President Donald J. Trump announced he will slap a 25% tariff on steel imports and a 10% tariff on aluminum imports, aimed at China.
“This type of policy has been historically associated with a weaker greenback,” Mr. Dumalagan said.
Meanwhile, he added that a “potential surge” in February’s inflation, which may print higher than the 2-4% target, may prompt more bets of a March rate hike from the Bangko Sentral ng Pilipinas.
The central bank expects February inflation to land within the 4-4.8% range, while UnionBank of the Philippines chief economist Ruben Carlo O. Asuncion gave a 4.6% projection.
Last month, the Philippine Statistics Authority announced that inflation in January accelerated to a three-year high of 4% as fuel and food prices increased and as the first tranche of the government’s tax reform program took toll.
In addition, the policy meetings of European Central Bank (ECB) and Bank of Japan (BoJ) this week are seen to be hawkish and will likely weaken the dollar.
“The ECB is expected to pursue more tightening moves this year, while the BoJ is expected to do the same in 2019,” Landbank’s market economist said.
However, dollar’s weakness may be tempered as US labor reports as well as comments from Fed officials William C. Dudley, Lael Brainard and Raphael W. Bostick are seen to be upbeat.
“Likewise, potentially weak trade reports from the Philippines and China could also lift the greenback by fuelling safe haven demand,” Mr. Dumalagan added.
For this week, a trader said the peso may trade from P51.80 to P52.15 today, while Mr. Dumalagan sees the local currency moving between P51.50 and P52.30 this week.
“The factors that could later the dollar’s forecasted sideways movement and give it an upward bias include weaker-than-expected Philippine inflation, unexpected dovish remarks from the ECB and BoJ, and easing concerns about US President Trump’s protectionist policies,” Mr. Dumalagan noted. — Karl Angelo N. Vidal