Peso may strengthen, return to PHP 57 level on weak US jobs data

The peso may continue to strengthen and return to the PHP 57 level against the dollar this week following a weak US jobs report and before the release of July Philippine inflation data.

The local unit ended at PHP 58.08 per dollar on Friday, strengthening by 25.3 centavos from its PHP 58.333 finish on Thursday, Bankers Association of the Philippines data showed.

This was the peso’s best finish in more than two months or since its PHP 57.97-per-dollar close on May 28.

Week on week, the peso likewise strengthened by 27 centavos from its PHP 58.35 close on July 26.

“Asian currencies strengthened against the dollar, driven by growing dovish sentiment towards the US Federal Reserve’s monetary policy. This shift in market expectations follows the release of weak US economic data, prompting investors to price in additional rate cuts from the Fed. The currency pair experienced significant selling pressure as a result,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

The peso was also supported by the Japanese yen’s continued appreciation against the dollar after the Bank of Japan unexpectedly hiked rates at its meeting last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar slipped on Friday as investors fretted US payrolls data could be weak after an unexpected slump in manufacturing raised concerns about a slowdown in the world’s largest economy and lifted traditional safe-haven currencies, Reuters reported.

The yen firmed, pushing the dollar down 0.2% to 149.04, building on gains in the wake of a Bank of Japan decision to raise rates and strengthening as far as 148.51 overnight for the first time since mid-March.

The dollar slipped 0.3% against a basket of other major currencies to trade at 104.06.

Released after Asian trade, Friday’s US jobs report showed job growth slowed more than expected in July and unemployment increased to 4.3%, pointing to possible weakness in the labor market and greater vulnerability to recession.

Markets were already rattled by downbeat earnings updates from Amazon and Intel and Thursday’s softer-than-expected US factory activity survey in addition to the monthly US nonfarm payrolls report, which showed job growth slumped to 114,000 new hires in July from 179,000 in June.

The data raised expectations of multiple rate cuts by the Federal Reserve this year, which just last week opted to keep rates unchanged.

The Fed has kept benchmark borrowing costs at a 23-year high of 5.25%-5.5% for a year, and some analysts believe the world’s most influential central bank may have kept monetary policy tight for too long, risking a recession.

Money markets on Friday rushed to price a 70% chance of the Fed, which was already widely expected to cut rates from September, implementing a jumbo 50 basis points cut next month to insure against a downturn.

For this week, Mr. Roces said the US jobs report will be the main driver of foreign exchange trading.

“This crucial economic indicator is likely to provide further insights into the US labor market’s health and could potentially reinforce or challenge current market expectations regarding the Fed’s future policy decisions,” he said.

The release of July Philippine inflation data will also affect the peso’s movement against the dollar this week, Mr. Ricafort added.

A BusinessWorld poll of 15 analysts last week yielded a median estimate of 4% for the consumer price index in July. This matches the lower end of the Bangko Sentral ng Pilipinas’ (BSP) forecast for the month.

If realized, July inflation would be faster than 3.7% in June but slower than 4.7% a year earlier.

It would also mark the eighth straight month that inflation settled within the BSP’s 2-4% annual target.

The Philippine Statistics Authority is set to release inflation data on Tuesday (Aug. 6).

Mr. Ricafort expects the peso to move between PHP 57.80 and PHP 58.30 per dollar this week. — A.M.C. Sy with Reuters