THE PESO is expected to move sideways against the dollar this week as weaker-than-expected labor data may offset negative sentiment due to increasing signs of slowing global growth.
The local currency weakened versus the greenback on Friday to end the week at a two-week low of P52.25 as it reeled from negative market sentiment brought by a dimmer global outlook from the European Central Bank (ECB).
Week on week, the peso also declined sharply from its P51.70-per-dollar finish last March 1.
“Weaker US jobs data could partly lead to weaker US dollar. However, this is offset by increasing signs of slowing global economic growth and outlook recently that also weighed on some emerging market equities and currencies,” Rizal Commercial Banking Corp. economist Michael L. Ricafort said in a text message yesterday.
The US economy created only 20,000 jobs in February, way below the market consensus of 173,000 and the 150,000 non-farm payrolls considered by the US Federal Reserve as strong.
A market analyst said the dollar may initially depreciate on Monday as the “soft” labor report could reinforce views of steady policy rates in the US this year.
“[W]hile the dollar is expected to decline, it might not fall abruptly due to safe haven buying amid weak economic reports that solidify views of slowing global growth,” the analyst added, citing China’s decline in exports and Eurozone’s slower economic growth forecast.
The ECB last week revised its gross domestic product growth forecast for the European economy to 1.1% from 1.7%, as ECB President Mario Draghi said the bloc is in a “period of continued weakness and pervasive uncertainty.”
Towards the end of the week, the analyst said the greenback may move sideways with an upward bias, supported by safe-haven demand and likely firm US economic reports on retail sales and inflation.
“Investors might prefer the safer greenback amid likely soft Philippine trade data and mixed Chinese [economic] reports… Along with these soft readings, the Bank of Japan during its meeting this week might also echo concerns on slowing growth,” the market watcher noted.
On the local front, Mr. Ricafort said the peso may weaken due to recent hints from the Bangko Sentral ng Pilipinas (BSP) about possible monetary policy easing and cuts in banks’ reserve requirement ratio (RRR).
Newly appointed BSP Governor Benjamin E. Diokno said the central bank may start considering cuts in policy rates given the decelerating inflation in the country, noting that timing remains an issue.
He also said that he wanted to “expedite” the process of cutting the 18% RRR for banks, although he clarified that the BSP’s policy’s will be “determined by analyses, evidence-based.”
For this week, the market analyst said the peso could trade between P51.80 and P52.50 versus the dollar, while Mr. Ricafort expects the local currency to move from P51.90-P52.20. — Karl Angelo N. Vidal