Peso may drop on bets of 50-bp Fed hike

THE PESO may depreciate versus the greenback this week as the market braces for a more aggressive tightening from the US Federal Reserve and amid expectations of faster inflation.

The local unit closed at P52.19 per dollar on Friday, gaining eight centavos from its P52.27 finish on Thursday, based on Bankers Association of the Philippines data.

It also strengthened by 12.5 centavos from its P52.315 close a week earlier.

The peso opened Friday’s session at P52.43 per dollar. Its weakest showing was at P52.45, while its intraday best was at P52.16 versus the greenback.

Dollars exchanged dropped to $1.199 billion on Friday from $1.597 billion on Thursday.

The peso strengthened on Friday as restrictions were kept at the most relaxed level in the capital, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Metro Manila and 88 other areas across the country will be under Alert Level 1 in the first half of May, the government said on Friday.

Another major driver for the peso’s strength last week was the central bank’s signal for the possibility of an earlier rate hike, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno last week told Bloomberg TV that they may consider a rate hike in June as they expect economic recovery to have gained traction in the first quarter.

This is a departure from the central bank chief’s previous statements that they will only start increasing interest rates in the second half of the year.

For this week, Mr. Asuncion said the dollar may strengthen as investors price in a bigger Fed rate hike.

Fed Chairman Jerome H. Powell earlier said they will consider a 50-basis-point (bp) increase during their May 3-4 policy review after the 25-bp hike in March.

Meanwhile, Mr. Ricafort said the April inflation report will drive market sentiment. The Philippine Statistics Authority will report last month’s consumer price index on May 5, Thursday.

A BusinessWorld poll of 17 analysts yielded a median estimate of 4.6% for April headline inflation, nearer the midpoint of the BSP’s 4.2% to 5% forecast range.

If realized, this would be beyond the 2-4% target. It would also be quicker than the 4% in March and the 4.5% a year earlier.

Analysts said the continued increase in oil prices amid the prolonged conflict in Ukraine as well as weather disruptions likely caused faster price increases last month.

For this week, Mr. Asuncion gave a forecast range of P52 to P52.50 per dollar, while Mr. Ricafort expects a tighter band of P52 to P52.40. —