Peso climbs further as dollar weakens amid slowdown fears

THE PESO strengthened on Thursday amid broad dollar weakness due to concerns over the health of the world’s largest economy.

The local currency closed at PHP 54.45 versus the greenback on Thursday, appreciating by 35 centavos from Wednesday’s PHP 54.80 finish, data from the Bankers Association of the Philippines showed.

The peso opened Thursday’s trading session slightly weaker from Wednesday’s close at PHP 54.86 per dollar. It dropped to as low as PHP 54.955, while its intraday best was at PHP 54.44 against the greenback.

Dollars traded rose to USD 1.375 billion from USD 1.147 billion on Wednesday.

“The peso appreciated significantly after dismal US corporate earnings reports bolstered views of potential weakening of US economic activity this year,” a trader said in an e-mail on Thursday.

“The gauge of the US dollar versus major global currencies again slightly corrected lower from near one-month highs… after the latest hawkish Fed signals in the quest to bring down elevated US inflation back to the target of 2%,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US dollar hovered near the middle of recent ranges versus major peers on Thursday as investors digested comments from a slew of US Federal Reserve officials, while crucial consumer inflation data loomed next week, Reuters reported.

The dollar index, which measures the US currency against six rivals, slipped 0.13% to 103.32, pulling away from the one-month high of 103.96 it touched on Tuesday at the peak of a rally following Friday’s stronger-than-expected jobs report. At the same time, 103 has provided a firm floor all week.

New York Federal Reserve President John Williams backed views of a peak rate of 5%-5.25%, higher than what markets expect a day after Fed Chair Jerome H. Powell acknowledged that the battle against inflation will take quite a bit of time.

Money market participants are now betting the Fed’s benchmark rate to rise above 5% in May before peaking to 5.16% by July, levels that officials have backed vociferously.

Fed Governor Lisa Cook said the US central bank is not yet done raising rates and even though inflation has shown signs of moderation, the economy is still running too hot.

The US central bank last week hiked its fed funds rate by 25 basis points (bps) to a 4.5% to 4.75% range. This brought cumulative increases since March 2022 to 450 bps.

The comments from Fed officials added to the cautious mood in US markets caused by mixed earnings results.

The peso was also supported by the increase in the country’s gross international reserves (GIR) at end-January, Mr. Ricafort added.

Preliminary data released by the Bangko Sentral ng Pilipinas late on Tuesday showed the GIR increased by 3.7% to USD 99.7 billion in January, from the USD 96.1 billion as of end-December 2022. Year on year, dollar reserves fell by 7.4%.

This is the highest level of dollar reserves since the USD 99.84 billion posted in July 2022.

For Friday, the trader said the peso could weaken against the dollar ahead of a likely upbeat US consumer sentiment report.

The trader gave a forecast range of PHP 54.30 to PHP 54.65, while Mr. Ricafort sees the peso trading between PHP 54.35 and PHP 54.55 against the dollar. — A.M.C. Sy with Reuters