Peso extends rally before key US inflation report

The peso continued to gain ground against the dollar on Thursday on expectations of slower US consumer inflation in June that would reinforce bets of a September rate cut by the US Federal Reserve.

The local unit closed at P58.305 per dollar on Thursday, strengthening by 1.5 centavos from its P58.32 finish on Wednesday, Bankers Association of the Philippines data showed.

This was a fresh one-month peak for the peso as this was its best finish since its P57.97-a-dollar close on May 28.

The peso opened Thursday’s session stronger at P58.24 per dollar, which was also its best showing intraday. Meanwhile, its lowest point for the session was at P58.34 against the greenback.

Dollars traded went down to $1.13 billion on Thursday from $1.16 billion on Wednesday.

The peso consolidated against the dollar before the release of the June US consumer price index (CPI) report overnight and on “strengthened bets of a Fed cut in September,” a trader said by phone.

“The peso improved for the seventh straight trading day ahead of the latest US CPI data that is expected to ease to 3.1% year-on-year in June 2024,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The local unit also rose after the recent signals from Fed Chair Jerome H. Powell supported recent market estimates of two rate cuts this year, he added.

The dollar dipped on Wednesday after Mr. Powell indicated that the US central bank is getting closer to cutting interest rates but wants to see further declines in inflation, Reuters reported.

The dollar index, which measures the US currency against six others including the euro and yen, was last down 0.07% at 105.05.

It comes before CPI data on Thursday is expected to show that headline prices eased on an annual basis in June. Economists polled by Reuters expected Thursday’s report to show that headline prices rose 0.1% on the month, while core prices gained 0.2%. That would put annual gains at 3.1% and 3.4%, respectively.

Mr. Powell said on Wednesday he was not ready to conclude that inflation is moving sustainably down to 2% though he has “some confidence of that.”

Traders now have around 73% odds for a rate cut by September, with a second cut also seen likely by December, according to the CME Group’s FedWatch Tool.

For Friday, the peso’s movement against the dollar will largely depend on the US CPI data, the trader said. The trader expects the peso to range from P58.20 and P58.50 versus the greenback on Friday, while Mr. Ricafort sees it moving from P58.20 to P58.40. — AMCS with Reuters