Peso may trade sideways after 2-week high close

The Philippine peso is expected to trade sideways this week ahead of the central bank’s policy-setting meeting on Thursday.

It strengthened on Friday as the dollar declined against most currencies, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message at the weekend.

The dollar index, which measures the currency against a basket of other major currencies, was last down by 0.8 to 102.11. Earlier in the session, the index dropped to 102.08, a five-week low, Reuters reported.

Mr. Ricafort said recent signals that the BSP could begin cutting the key rate by the first quarter of next year had also boosted the peso.

“With inflation starting to go down, the outlook is that possibly next year, there could be a shift in the (BSP) monetary policy stance,” BSP Deputy Governor Francisco G. Dakila, Jr. said on Thursday.

The peso closed at a two-week high of PHP 55.86 a dollar on Friday, strengthening by 8.5 centavos from a day earlier, data from the Bankers Association of the Philippines’ website showed.

It was the peso’s best close since May 26. Week on week, the currency appreciated by 19 centavos.

The peso opened at PHP 55.82 a dollar, weakened to as much as PHP 55.888 and appreciated to as much PHP 55.73.

Dollars traded rose to USD 969.15 million from the USD 729.5 million on Thursday.

Mr. Ricafort expects the peso to trade sideways before the BSP policy meeting.

All 15 economists in a BusinessWorld poll last week expected the central bank to keep the key rate at a near 16-year high of 6.25% on June 22.

This could be the second straight meeting that the BSP will leave interest rates untouched. The central bank has raised borrowing costs by 425 bps since May last year.

A currency trader said the peso might weaken against the dollar as the BSP mirrors the US Federal Reserve’s signal that it could still tighten policy amid a strong US economy and inflation that hasn’t cooled as much.

The Fed paused its aggressive tightening campaign at its meeting last week after hiking policy rates by 10 times straight. It has raised borrowing costs by 500 bps to 5-5.25%. 

However, at a news briefing at the end of the policy meeting, Fed Chairman Jerome H. Powell signaled there could be two more 25-bp rate increases this year as US inflation remains sticky.

Back home, inflation for May cooled to 6.1% from 6.6% in April, though it was faster than 5.4% a year earlier.

This was the 14^th straight month that the consumer price index was above the central bank’s 2-4% target for the year.

The trader expects the peso to trade at PHP 56 to PHP 56.30 a dollar this week, while Mr. Ricafort expects it to trade from PHP 55.55 to PHP 56.05. — Aaron Michael C. Sy