Peso at two-month high on rate hike bets

THE PESO strengthened against the dollar on Monday to hit a twomonth high as market players anticipate a rate hike at the central bank’s meeting this week.

The local unit ended yesterday’s trading at P52.85 against the greenback, 30 centavos stronger than the P53.15-per-dollar finish on Friday.

This was the peso’s strongest closing rate in nearly two months since it closed at P52.70 versus the US currency on June 8.

The peso traded stronger the whole day, opening the session at P53.10 against the dollar. It climbed to as high as P52.84, while its intraday low stood at P53.135 versus the greenback.

Dollars traded amounted to $892.9 million, up from the $595.15 million that exchanged hands in the previous session.

“The peso strengthened ahead of the key local economic data this week,” a trader said in an email on Monday.

Economists are expecting the Bangko Sentral ng Pilipinas (BSP) to tighten monetary policy rates anew as inflation might have spiked further in July.

According to a BusinessWorld poll, analysts expect headline inflation to have picked up further last month to 5.5% from the 5.2% print in June.

BSP Governor Nestor A. Espenilla, Jr. has hinted of a “strong follow-though” policy action after two 25-basis-point increases the central bank implemented in May and June to quell inflation expectations.

The monetary policy decision of the BSP’s Monetary Board as well as the release of data on the country’s second-quarter gross domestic product growth will be announced on Thursday, while the July inflation report is due for release today.

The trader also attributed the peso’s climb to the “mixed” US jobs data released on Friday.

The US created 157,000 additional jobs in July, the slowest gain since March. However, the unemployment rate declined by a tenth of a percentage point to 3.9%.

Another trader added that the peso was an “outperformer” in the region as market players factored in a possible BSP rate increase.

“The People’s Bank of China on Friday night announced that they will increase by 20% the reserve requirement on foreign exchange forward contracts. Effectively, this will make it more expensive for market players to short the Chinese yuan,” the trader added. “With that, the region moved in tandem with the Chinese yuan to weaken.”

For Tuesday, the first trader expects the peso to move between P52.70 and P52.90 versus the dollar, while the other gave a P52.75-P53 range.