Peso may rebound after weak US reports

THE PESO may gain against the dollar this week after US inflation came out weaker than expected and hawkish bets on the European Central Bank’s (ECB) next move, as well as the recent comments of US Federal Reserve Janet L. Yellen on gradually hiking interest rates.

The local currency ended last week weaker, closing at P50.65 versus the greenback on Friday, 12 centavos lower from the previous session’s close of P50.53 per dollar. Week-on-week, the peso also slid from its P50.58-a-dollar close last July 7.

An analyst said the exchange rate could settle at P50.40 to P50.80 this week, with the peso expected to have an upward bias on the back of weak key US economic reports, as well as likely hawkish statements from the ECB at its meeting this week.

“The dollar might depreciate this week, driven by softer US reports on retail sales and inflation as well as likely hawkish statements from the European Central Bank,” Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, said in an e-mail.

ECB policy makers meet on Thursday. The central bank is keen to keep its asset purchases open-ended rather than setting a potentially distant date on which bond-buying will stop, to retain flexibility in case the outlook sours, Reuters reported.

Meanwhile, US consumer price index remained unchanged in June versus the 0.1% drop in May after the price of gasoline and mobile phone services continued to decline, the government reported on Friday.

The US Commerce Department also reported that retail sales dropped by 0.2% in June, anchored by a slump in receipts at service stations, clothing stores and supermarkets. Year-on-year, retail sales increased 28% by endJune.

Following these weak economic reports, prospects of a third monetary tightening by the Fed before the year ends have dimmed.

CME Group’s FedWatch program bared financial entities are now pricing in a 47% chance of another interest rate hike in December, 55% down from previous data.

“The dollar’s projected decline might be tempered by safe-haven buying amid possibly weaker Chinese data on retail sales, industrial production and overall economic growth,” Mr. Dumalagan said.

“The factors that could reverse the dollar’s projected downward bias include weaker-thanexpected Chinese reports, more hawkish remarks from US policy makers, and unexpected dovish comments from the ECB,” he added.

Meanwhile, a trader said the exchange rate for this week will depend on US inflation data and the tone of the Fed.

“Important data on US inflation and the Fed’s remarks will dictate the movement of the peso this week,” the trader said by phone on Friday, noting the peso could move within a wide range of P50.40 to P50.80 against the dollar this week.

Another trader said the peso could remain in consolidation, with trading range likely to fall within P50.40 to P50.70 today.