Peso depreciates before key US inflation report

The peso dropped against the dollar on Thursday as the market awaited the release of August US consumer price index (CPI) data overnight that could cement a US Federal Reserve rate cut at its meeting next week.

The local unit closed at PHP 57.191 versus the greenback, weakening by 6.6 centavos from its PHP 57.125 finish on Wednesday, Bankers Association of the Philippines data showed.

The peso opened Thursday’s session stronger at PHP 57.05 versus the dollar. Its intraday high was at PHP 57.04, while its worst showing was at PHP 57.28 against the greenback.

Dollars traded went up to USD 1.57 billion on Thursday from USD 1.44 billion on Wednesday.

“The dollar-peso consolidated today as the market awaited US inflation data to be released tonight,” a trader said in a phone interview.

The dollar was mostly stronger on Thursday on safe-haven demand due to renewed geopolitical tensions, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Friday, the trader expects the peso to move between PHP 57 and PHP 57.40 per dollar, while Mr. Ricafort sees it ranging from PHP 57.05 to PHP 57.30.

The dollar held steady on Thursday as traders await key US consumer price data for a steer on the Federal Reserve’s rate cutting path, while the euro was unchanged ahead of a European Central Bank (ECB) meeting, Reuters reported.

“The main event is the US CPI… The market is looking for reasons to reprice the Fed lower and push the USD down,” said Michalis Rousakis, G10 FX strategist at Bank of America.

“The question is whether the Fed can be re-priced lower, given that a cut or a little more is priced for September, and almost three cuts are priced by yearend,” he said. Bank of America’s house view is for two more Fed rate cuts this year.

The dollar index nudged up 0.1% to 97.91, with the dollar largely steady against major currencies.

Elsewhere, an unexpected drop in US factory-gate prices on Wednesday has bolstered expectations that the Federal Reserve will cut rates next week.

The data followed Tuesday’s revision to US employment growth figures, with the US having created 911,000 fewer jobs in the 12 months through March than previously estimated.

Meanwhile, the ECB is expected to hold rates steady when it meets later in the day.

The euro was unchanged at $1.169225 ahead of the meeting. Analysts said policymakers may strike a more dovish tone to counter a fraught trade and political outlook across the continent.

The common currency is stabilizing after a two-day streak of declines as geopolitical tensions continue on the bloc’s eastern flank. Poland said it shot down suspected Russian drones in its airspace on Wednesday with the backing of aircraft from its NATO allies, the first time a member of the Western military alliance is known to have fired shots during Russia’s war in Ukraine.

Commerzbank analysts said in a note that hopes of the ECB meeting being a catalyst for greater movement in EUR/USD are likely to be disappointed, given no new information is likely to be forthcoming.

“If anything, hopes may lie with ECB President Christine Lagarde. After all, she sounded surprisingly hawkish at the last two press conferences,” they wrote.

Given that a rate cut is not expected until next June, they added, Ms. Lagarde is unlikely to reveal her hand so far in advance.

Attention remains on the Fed’s likely rate cut trajectory.

Markets are trading on expectations that the prospect of the Fed easing is a certainty and the only remaining question is by how much. Traders are pricing in an 8.9% chance of a jumbo 50 basis points (bps) rate cut at the central bank’s Sept. 16-17 meeting, while a cut of at least 25 bps is viewed as a done deal, according to the CME Group’s FedWatch tool.

Appointments to the Fed’s rate-setting panel remained in focus, as President Donald J. Trump’s administration on Wednesday moved to appeal a federal judge’s ruling temporarily blocking Mr. Trump from taking the unprecedented step of firing Federal Reserve Governor Lisa Cook. The White House is seeking to remove her before next week’s Fed meeting.

Stephen Miran also moved closer to becoming a Federal Reserve governor, furthering Mr. Trump’s effort to exert more direct control over interest rate policy. The Senate Banking Committee voted to advance Mr. Miran’s nomination, though lawmakers involved said it is far from certain if the process can be completed in time for him to participate in the coming meeting.

Against the yen, the dollar was trading 0.2% higher at 147.80 yen after data showing Japanese wholesale prices rose 2.7% in the year to August, accelerating from the previous month in a sign of sticky inflationary pressure in the world’s fourth-largest economy.

The Australian dollar slipped 0.1% to $0.66095, retreating after hitting the highest levels since November on Wednesday, as commodities including crude oil and gold gave up recent gains.

The offshore yuan traded at 7.1216 yuan per dollar, strengthening 0.04%. The kiwi slipped 0.2% to USD 0.59290.

Sterling traded down 0.1% to USD 1.35195. — A.M.C. Sy with Reuters