Peso could weaken on safe-haven demand for dollar

THE PESO is expected to weaken this week as the dollar’s strength may persist on safe-haven demand as investors await the details of the tentative deal reached to raise the US debt ceiling.

The local currency closed at PHP 55.79 versus the greenback on Friday, climbing by 27.50 centavos from Thursday’s PHP 56.065 finish, Bankers Association of the Philippines data showed.

Week on week, the peso declined by 12 centavos from its PHP 55.67 finish on May 19.

The peso opened Friday’s session at PHP 56.03 per dollar. Its worst showing was at P56.05, while its intraday best was at PHP 55.67 versus the greenback.

Dollars traded fell to USD 986.2 million on Friday from the USD 1.637 billion seen on Thursday.

The peso strengthened on Friday amid lower global crude oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Brent crude futures went down USD 2.10 or 2.7% to USD 76.25 a barrel, while US West Texas Intermediate crude settled down USD 2.51 or 3.4% to USD 71.83, Reuters reported.

For this week, the peso could weaken on continued dollar strength amid the US debt ceiling talks and a potential pause in the US Federal Reserve’s tightening cycle, Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

On Friday, the US dollar index, which tracks the currency against six major counterparts, went down by 0.02% to 104.23.

US President Joseph R. Biden, Jr. and top congressional Republican Kevin McCarthy reached a tentative deal to suspend the federal government’s USD 31.4-trillion debt ceiling on Saturday evening, ending a months-long stalemate, Reuters reported.

The deal would suspend the debt limit through January of 2025, while capping spending in the 2024 and 2025 budgets, claw back unused COVID funds, speed up the permitting process for some energy projects and includes some extra work requirements for food aid programs for poor Americans.

The deal will avert an economically destabilizing default, so long as it succeeds in passing it through the narrowly divided Congress before the Treasury Department runs short of money to cover all its obligations, which it warned on Friday will occur if the debt ceiling issue was not resolved by June 5.

Meanwhile, the minutes of the Fed’s May 2-3 meeting showed officials “generally agreed” that the need for further interest rate increases “had become less certain,” with several saying that the 25-basis-point (bp) hike they approved might be the last.

The US central bank has raised rates by 500 bps since March 2022, with the fed funds rate now at 5%-5.25%.

Its next meeting is on June 13-14.

For this week, Mr. Asuncion expects the local unit to trade between PHP 55.80 and P56.40 per dollar, while Mr. Ricafort sees it moving from PHP 55.50 to PHP 56. — By AMCS with Reuters