Peso weakens to 19-month low

The peso declined to a 19-month low against the dollar on Monday due to expectations that Philippine headline inflation picked up in May.

The local unit closed at PHP 58.68 per dollar on Monday, weakening by 17 centavos from its PHP 58.51 finish on Friday, Bankers Association of the Philippines data showed.

This was the peso’s worst finish in 19 months or since its PHP 58.80-a-dollar close on Nov. 3, 2022.

The local unit is now down by PHP 3.31 from its end-2023 close of PHP 55.37 versus the greenback.

The peso opened Monday’s session stronger at PHP 58.47 against the dollar. It climbed to as high as PHP 58.41, while its worst intraday showing was at PHP 58.70 versus the greenback.

Dollars exchanged went down to USD 1.32 billion on Monday from USD 1.55 billion on Friday.

“The peso weakened amid potentially higher Philippine inflation for May 2024,” a trader said in an e-mail.

Headline inflation may have quickened for a fourth straight month in May due to higher electricity costs, analysts said.

A BusinessWorld poll of 16 analysts yielded a median estimate of 4% for the May consumer price index (CPI), within the central bank’s 3.7-4.5% forecast for the month.

If realized, May inflation would be faster than 3.8% in April but slower than the 6.1% print in the same month a year earlier.

This would mark the sixth straight month that inflation was within the central bank’s 2-4% target range.

The Philippine Statistics Authority will release May CPI data on Wednesday (June 5).

The peso was also dragged down by a generally stronger dollar on Monday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar held steady on Monday, as investors warmed to the idea that US inflation may have slowed enough for the US Federal Reserve to cut rates in 2024, Reuters reported.

The dollar index, which measures the US currency against six others, was up 0.1% at 104.67. The index fell 1.56% in May but is up 3% for the year.

The dollar posted its first monthly decline of the year in May, weighed down by shifting expectations on when the US central bank will cut rates and by how much, with markets pricing in 37 basis points of cuts this year from the Fed.

Data on Friday showed a measure of consumer inflation staged a modest rise in April and price pressures remained above the central bank’s 2% target.

Traders are pricing in about a 60% chance of a September rate cut, versus 49% before the report.

For Tuesday, the trader said the peso could depreciate further due to likely stronger May US manufacturing purchasing managers’ index data set for release overnight.

The trader sees the peso moving between PHP 58.55 and PHP 58.80 on Tuesday, while Mr. Ricafort expects it to range from PHP 58.55 to PHP 58.75 per dollar. — A.M.C. Sy with Reuters