Peso sinks to over 18-month low before key US data, BSP meeting

THE PESO sank to an over 18-month low against the dollar on Monday, inching closer to the P58 level, before the release of US producer inflation data and expectations of dovish comments from the Bangko Sentral ng Pilipinas (BSP) at their policy meeting this week.

The local unit closed at P57.86 per dollar on Monday, weakening by 44 centavos from its P57.42 finish on Friday, Bankers Association of the Philippines data showed.

This was the peso’s worst finish since its P58.19-per-dollar close on Nov. 10, 2022.

The peso opened Monday’s session at P57.63 against the dollar. Its intraday best was at P57.59, while its weakest showing was at P57.87 versus the greenback.

Dollars exchanged rose to $1.13 billion on Monday from $1.03 billion on Friday.

“The peso depreciated significantly amid expectations of a strong US producer inflation report [on Tuesday],” a trader said in an e-mail.

The dollar consolidated against other major currencies on Monday as traders waited for US inflation data that could help determine whether the Federal Reserve could lower borrowing costs in 2024 and by how much, Reuters reported.

Recent softer-than-expected US labor market data and a Federal Reserve that ruled out further interest rate rises saw traders price in more easing from the Fed this year.

Markets are pricing in around an 80% chance of a rate cut by the Fed’s September meeting, with about 40 basis points (bps) of cuts in total expected in 2024, LSEG data showed.

Comments by Fed officials last week varied as some ratesetters debated whether interest rates were high enough. A jump in consumers’ inflation expectations, revealed in a survey on Friday, could further complicate the conversation.

With recent data indicating an economy that is slowing slightly from the robust growth seen in 2023, investors are looking to confirm how sticky inflation is.

The market will have a chance this week, with US inflation readings in the form of the producer price index on Tuesday followed by the consumer price index on Wednesday.

The dollar index, which measures the US currency against a basket of six others, was little changed at 105.30, following its first weekly rise in three weeks last week.

Meanwhile, the dollar has crept up again against the yen after a 3% decline at the start of the month, its steepest weekly percentage drop since early December 2022, after two bouts of suspected intervention by Japanese authorities to strengthen its currency.

The peso was also dragged down by expectations of dovish comments from the BSP at its rate-setting meeting on Thursday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A Business World poll conducted last week showed 17 of 19 analysts expect the Monetary Board to maintain its policy rate at a 17-year high of 6.5% for a fifth straight meeting on Thursday.

On the other hand, one analyst expects the BSP to cut rates by 25 bps, while another sees the central bank raising rates amid elevated inflation.

The BSP hiked borrowing costs by 450 bps from May 2022 to October 2023.

For Tuesday, the peso will likely remain weak ahead of the US inflation reports, the trader said.

The trader sees the peso moving between P57.75 and P57.80 per dollar, while Mr. Ricafort expects it to range from P57.75 to P57.95. —