Peso to drop on Yellen
THE PESO is expected to weaken this week after hawkish remarks from Federal Reserve officials on the possibility of a rate hike in the United States this year depending on the strength of economic data released in the coming months.
The local currency ended Friday's trading at P46.36 versus the dollar, almost unchanged from its previous day's close of P46.35 against the foreign unit as investors stayed on the sidelines ahead of remarks of Fed Chairperson Janet L. Yellen at a meeting of central bankers in Jackson Hole, Wyoming that could give a clearer outlook on the next US interest rate hike.
Week on week, the peso was stronger by 12 centavos compared to its P46.48 per dollar finish last Aug. 19.
Traders said the dollar- peso pair will take direction this week from overseas developments.
"The dollar might strengthen after Federal Reserve Vice Chairman Stanley Fischer said the US central bank could possibly raise interest rates twice before the end of 2016, although the decision would be data-dependent," a trader said over the weekend.
"[ Mr.] Fischer's comments overshadowed remarks from Fed Chairwoman Janet [L.] Yellen at the Fed's annual economic symposium in Jackson Hole since two rate hikes look very, very hawkish," the trader added.
Guian Angelo S. Dumalagan, market economist of the Land Bank of the Philippines ( Landbank), said: "the dollar might move erratically this week, although it might potentially show an upward bias, as majority of the economic data this week might provide added support to Fed Chair Yellen's hawkish comments last Friday about the growing strength of the US economy."
Investors, he noted, might probably scrutinize US reports on personal consumption expenditure (PCE) inflation and employment to ascertain the veracity of the aggressive remarks made by many Fed officials.
From Tuesday to Wednesday, the Landbank economist said "investors might probably be reacting towards contrasting US data that might partially support views of a US interest rate hike by December."
"Towards the end of the week, he noted that the dollar "might potentially strengthen, as US ADP employment report might further confirm the steady recovery of the US labor market, increasing the chances of a US rate hike this year."
"Furthermore, expectations of weak Chinese data on manufacturing and non- manufacturing might also give the dollar a boost by fuelling safe- haven demand. Gains, however, might be minimal, as investors might remain on the sidelines ahead of the US non-farm payrolls report on Friday evening."
At the same time, investors might hesitate to push the dollar higher given the uncertainties brought by the US non-farm payrolls report on Friday, he added.
Fed's Ms. Yellen said over the weekend that the case for another interest rate hike is strengthening, sending a strong signal the US central bank is preparing to increase rates soon, adding that said the Fed policy.
One trader said the dollar-peso pair coud trade within the P46.20 to P46.80 range, while another trader put the support at P46.10 and the resistance level at P47 versus the foreign unit this week. •