Solid US economic data to put pressure on peso

THE PESO is expected to continue its slide against the dollar this week and test new lows as strong US retail sales data bolstered expectations of the likelihood that the Federal Reserve will move to raise borrowing costs as early as September this year.

The local currency snapped its two-day recovery against the greenback on Thursday, plunging to its lowest level in over a year at P45.15 versus the greenback, down 24 centavos from Wednesday’s close of P44.91-tothe-dollar on the back of increasing yields in US Treasuries and as investors chose to keep their positions ahead of Friday’s Independence day holiday.

Last Thursday’s finish is the peso’s worst close in over a year or since it ended trading at P45.18 per dollar last Feb. 6, 2014 and is also the peso’s new low for this year, with its previous 2015 trough being its P45.065-to-thedollar finish last Jan. 8.

Week on week, the peso was 28 centavos down from to its P44.87per-dollar close last June 6.

Traders interviewed by phone on Thursday said that following the strong US jobs report two weeks ago, the market’s eyes will be on the retail sales data, which would help confirm the pace of recovery of the world’s largest economy.

“Dollar- peso trading [ this week] will be dependent on the outcome of the US retail sales,” the trader said on Thursday ahead of the data release. “Should data come out better than the previous, then we’ll see the dollar further strengthening. Otherwise, peso-dollar may return to the P44 level on lack of fresh leads. Peso could recover its losses.”

US retail sales surged in May as households boosted purchases of automobiles and a range of other goods even as they paid a bit more for gasoline, the latest sign economic growth is finally gathering steam.

The Commerce Department said on Thursday retail sales increased 1.2% last month after an upwardly revised 0.2% gain in April. Economists polled by Reuters had forecast retail sales advancing 1.1% last month. April sales were previously reported to have been unchanged. March sales were also revised to show them rising 1.5% instead of 1.1%.

Solid retail sales data added to robust job growth in May and stabilizing manufacturing activity in suggesting the economy was finding momentum after getting off to a slow start in the second quarter. That likely keeps the Fed on track to raise interest rates this year.

Another trader, following the data release, said that aside from the “better- than- expected” US retail sales data, the anticipated Fed policy statement this week could also drive peso-dollar trading.

“Retail sales showed good numbers so we expect dollar to be strong... The market is optimistic that when Fed policy makers meet this week, they will already suggest their intention to raise interest rates and maybe provide fresh clues on the status of the US economy. Indications of a rate hike typically cause the dollar to strengthen since higher rates would increase the return on bank deposits held in dollars,” the trader explained.

The US central bank’s policysetting Federal Open Market Committee ( FOMC) meets on June 16-17. Fed Chair Janet L. Yellen has said the US central bank will raise rates this year as long as US economic data would continue to improve.

Another trader said other developments overseas, particularly the growing uncertainty in Greece, could also cause volatility in trading this week.

An International Monetary Fund (IMF) spokesman has been reported to be saying that there were major differences with Greece on aid negotiations and that the IMF team has left Brussels, where the talks were held.

Investors continue to watch headlines related to Greece after the IMF abruptly halted bailout talks with Greek officials last week, saying they were frustrated by a lack of progress.

For today’s trading, the first trader said the peso could move within the P44.95- to P45.15per-dollar band, while the other traders said the exchange rate could range between P44.90 and P45.10. —