Peso rises on Fed bets, easing US inflation

The peso strengthened against the dollar on Tuesday as the market looked to the US Federal Reserve’s next policy move amid an expected easing in inflation.

It closed at PHP 55.95 a dollar, up by 10 centavos from Friday’s PHP 56.05 finish, data from the Bankers Association of the Philippines’ website showed.

The currency opened at PHP 56.09 a dollar. It weakened to as much as PHP 56.13 and strengthened to as much as PHP 55.93 a dollar.

Dollars traded dipped to USD 834.75 million from USD 979.2 million on Friday.

“The peso appreciated due to expectations of a likely weaker US consumer inflation report for May 2023,” a trader said in an e-mail.

It was expected to ease to 4.1% from 4.9% in April, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The peso also appreciated after the dollar fell against other currencies ahead of a possible pause in the Fed’s tightening cycle that could be matched locally, he said.

The dollar edged broadly lower on Tuesday but traded in a narrow range, as investors remained cautious ahead of key US inflation data due later in the day just as the Federal Reserve kicks off its two-day monetary policy meeting, Reuters reported.

The US dollar index fell by 0.17% to 103.40, languishing near Monday’s trough of 103.24, its lowest since May 23.

The US central bank raised borrowing costs by 25 basis points (bps) last month, bringing the Fed fund rate to 5-5.25%. It has increased borrowing costs by 500 bps since March 2022.

The Federal Open Market Committee will review policy on June 13-14.

Mr. Ricafort said the US consumer price index (CPI) is expected to ease to 4.1% in May from the 4.9% in April.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) paused its aggressive monetary tightening last month and signaled it would hold its key rate at its next two to three meetings.

The BSP has raised policy rates by 425 bps since May 2022. The Monetary Board will review policy on June 22. 

The peso was also supported by lower global crude oil prices recently, Mr. Ricafort added.

Oil prices traded up on Tuesday on bargain hunting, recovering some ground from the previous day’s plunge, but gains were limited as investors remained cautious ahead of key policy decisions by the US Federal Reserve and other central banks.

Brent crude futures climbed 77 cents or 1.1% to USD 72.61 a barrel by 0640 GMT. US West Texas Intermediate (WTI) crude was at USD 67.68 a barrel, up 56 cents or 0.8%.

Both benchmarks fell around USD 3 a barrel on Monday after analysts highlighted rising global supplies and concerns about demand growth just ahead of key inflation data and a two-day Fed monetary policy meeting concluding on Wednesday.

For Wednesday, the trader said the peso could strengthen further on expectations of a subdued US producer inflation report.

Both the trader and Mr. Ricafort sees the peso trading from PPH P55.85 to PHP 56.05 a dollar. – Aaron Michael C. Sy