Peso drops as PPI data boost views of late Fed cut

The peso depreciated against the dollar on Monday after faster-than-expected US producer inflation bolstered views of a delayed rate cut by the US Federal Reserve.

The local unit closed at PHP 56.07 per dollar on Monday, weakening by 11 centavos from its PHP 55.96 finish on Friday, Bankers Association of the Philippines data showed.

The peso opened Monday’s session stronger at PHP 55.87 against the dollar. Its weakest showing was at PHP 56.13, while its intraday best was at PHP 55.86 versus the greenback.

Dollars exchanged went up to USD 1.51 billion on Monday from USD 925.2 million on Friday.

“The peso weakened today amid firmer expectations of delayed Fed rate cuts from the strong US producer inflation report,” a trader said in an e-mail on Monday.

US producer prices increased more than expected in January amid strong gains in the costs of services such as hospital outpatient care and portfolio management, Reuters reported.

The increase reported by the Labor department on Friday was the largest in five months. The report prompted financial markets to dial back expectations that the Federal Reserve would start cutting interest rates in June.

The producer price index (PPI) for final demand rose by 0.3% last month, the largest increase since August 2023, after declining by a revised 0.1% in December, the Labor department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI gaining 0.1% following a previously reported 0.2% drop.

In the 12 months through January, the PPI increased 0.9% after climbing 1% in December.

The peso weakened against the dollar as Philippine stocks declined, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. The Philippine Stock Exchange index fell by 1.08% or 74.62 points to close at 6,798.61 on Monday, while the broader all shares index went down by 0.97% or 35.06 points to finish at 3,562.61.

For Tuesday, the trader said the peso could continue depreciating against the dollar as China’s central bank is expected to cut rates.

The trader sees the peso moving between PHP 55.90 and PHP 56.15 on Tuesday, while Mr. Ricafort sees it ranging from PHP 55.95 to PHP 56.15. — AMCS with Reuters