Peso to weaken on hawkish Fed

THE PESO is seen to weaken further this week as likely mixed US data and hawkish Federal Reserve officials may boost the attractiveness of the greenback.

The local unit ended last week at P54.23 against the dollar, nine centavos stronger than the previous close, as market players reacted to a lower-than-expected inflation reading for September, which helped ease negative sentiment towards the peso.

However, the peso weakened week-on-week from Sept. 28’s P54.02-per-dollar finish.

Ruben Carlo O. Asuncion, UnionBank of the Philippines chief economist, said the market will be looking at external factors this week.

“It seems that the peso has been quite stable after the last hike,” Mr. Asuncion said in a text message. “Anything that will influence [the peso] otherwise, I think, would be more coming from the outside.”

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines, said the dollar is expected to move sideways with an upward bias “supported by likely US producer and consumer price inflation reports” as well as possibly hawkish remarks from various policy makers.

The peso may start the week on a positive note as the dollar may depreciate following the “weakerthan-expected” US non-farm payrolls report for last month.

The American economy added 134,000 jobs last month due to the drop in employment in the hospitality, leisure and retail sectors. However, unemployment rate fell to 3.7% during the month, its lowest in nearly five decades.

“The dollar’s decline might be minimal at best, especially since other labor report remained generally upbeat, including the unemployment rate...and average hourly earnings which continued to show firm results,” Mr. Dumalagan said in an e-mail.

After trading sideways in the next two days, he said the US currency might strengthen on the back of positive inflation reports as well as likely hawkish statements from various policy makers.

The US core producer price index is expected to rise to 2.5% in September 2018 from 2.3% the prior month and above the 2% target by the US central bank. Likewise, the core consumer price index is seen to climb to 2.3%from 2.2% the prior month.

“Consistent with the trend of rising inflation, US Federal Reserve officials...are expected to provide generally upbeat remarks about the pace of US economic growth,” Mr. Dumalagan noted.

For this week, Mr. Asuncion expects the peso to trade between P54 and P54.30, while the market economist gave a P54-P54.40 range.

“The Philippine trade report and the [European Central Bank] policy meeting minute might introduce some volatility,” Mr. Dumalagan said, adding that “erratic movements” caused by lingering US-China trade tensions as well as alleged cyber attacks on US firms may also provide uncertainty.