Currencies 3 MIN READ

Peso down on Fed bets after strong jobs data

April 12, 2023By BusinessWorld

THE PESO weakened to a near one-month low against the dollar on Tuesday following strong US jobs data, which could mean another rate hike by the US Federal Reserve, and after Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla hinted at a possible pause in its tightening cycle.

The local currency closed at PHP 54.93 versus the dollar on Tuesday, depreciating by 53 centavos from its PHP 54.40 finish on April 5, data from the Bankers Association of the Philippines’ website showed.

This is the peso’s weakest close since its PHP 54.95-per-dollar finish on March 15.

The local unit opened Tuesday’s session sharply weaker at PHP 54.60 per dollar. It logged an intraday best of PHP 54.58, while its worst showing was at PHP 54.955 versus the greenback.

Dollars traded dropped to USD 1.143 billion on Tuesday from the USD 1.239 billion recorded on April 5.

The foreign exchange market was closed from April 6-10 for non-working days in observance of Holy Week and to commemorate the Day of Valor.

“The peso weakened following the robust US employment reports for March 2023 and after BSP Governor Medalla hinted at a potential pause in BSP rate hikes,” a trader said in an e-mail.

US employment data fueled bets of another 25-basis-point (bp) rate hike from the Fed in its next meeting, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

US employers maintained a strong pace of hiring in March, pushing the unemployment rate back down to 3.5% and signaling labor market resilience that will keep the Fed on track to raise interest rates one more time next month, Reuters reported.

Non-farm payrolls increased by 236,000 jobs last month, the survey of establishments showed.

Data for February was revised higher to show 326,000 jobs added instead of the previously reported 311,000.

The Fed last month raised its target interest rate by 25 bps to a range between 4.75% and 5%.

The US central bank has hiked rates by 475 bps since March 2022. It will hold its next review on May 2-3.

Meanwhile, Mr. Medalla told Reuters over the weekend that a pause in interest rate increases was possible “if the April CPI (consumer price index) is not higher than the March CPI.”

Mr. Medalla said a “zero or negative month-on-month inflation” may also support the case for a rate hike pause.

Philippine headline inflation eased for a second consecutive month in March to 7.6% from 8.6% in February. For the first quarter, inflation averaged 8.3%, still higher than the BSP’s 6% full-year forecast.

Since May 2022, the Monetary Board has raised key interest rates by 425 bps, bringing its policy rate to a near 16-year high of 6.25%. Its next meeting is on May 18.

The peso was also dragged lower by an increase in global crude oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Brent crude futures rose 64 cents or 0.8% to USD 84.82 a barrel at 0557 GMT, while US West Texas Intermediate futures gained 67 cents or 0.8% to USD 80.41 a barrel.

For Wednesday, the trader said the peso could appreciate “amid expectations of a continued decline in US consumer inflation for March.”

The March US consumer price index report will be released on April 12.

The trader expects the peso to move between PHP 54.80 and PHP 55.05 against the dollar on Wednesday, while Mr. Ricafort expects it to trade from PHP 54.80 to PHP 55. — A.M.C. Sy with Reuters

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