Peso inches lower vs dollar on expectations of faster inflation

The peso weakened slightly against the dollar on Monday on expectations that Philippine headline inflation quickened further in March.

The local unit closed at PHP 56.255 per dollar on Monday, depreciating by 1.5 centavos from its PHP 56.24 finish on Wednesday, Bankers Association of the Philippines data showed.

The peso opened Monday’s session stronger at PHP 56.17 against the dollar. Its weakest showing was at PHP 56.27, while its intraday best was at PHP 56.125 versus the greenback.

Dollars exchanged went down to USD 847.15 million on Monday from USD 1.18 billion on Wednesday.

“The peso weakened amid local market expectations of a potentially higher domestic inflation in March,” a trader said in an e-mail.

Headline inflation may have accelerated further last month due to higher prices of food, fuel and electricity, the Bangko Sentral ng Pilipinas (BSP) said on Monday.

Inflation likely settled within the 3.4 to 4.2% range in March, the central bank said in a statement.

If realized, March inflation would be much slower than the 7.6% print recorded in March 2022. The lower end of the BSP’s estimate would also be unchanged from the February rate.

However, the upper end of the forecast would breach the BSP’s 2-4% target range for the first time since November’s 4.1% and mark the second straight month that inflation accelerated month-on-month.

Meanwhile, a BusinessWorld poll of 17 analysts conducted last week yielded a median estimate of 3.8% for March inflation, within the BSP’s forecast range.

The Philippine Statistics Authority will release March consumer price index data on April 5, Friday.

The peso was also dragged down by a generally stronger dollar and higher global crude prices on Monday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar was broadly steady on Monday as data showing easing US prices bolstered bets that the Federal Reserve could cut interest rates in June, Reuters reported.

The personal consumption expenditures price index rose 0.3% in February, the Commerce department’s Bureau of Economic Analysis said on Friday, compared with the 0.4% rise that economists polled by Reuters had forecast.

Federal Reserve Chair Jerome Powell on Friday said the latest US inflation data was “along the lines of what we would like to see,” in comments that tallied with his remarks after the Fed’s policy meeting last month.

Markets are now pricing in a 68.5% chance of the Fed cutting rates in June versus a 57% chance at the end of last week, the CME FedWatch tool showed. Traders are also pricing in 75 basis points of cuts this year.

The dollar index, which measures the US currency against six rivals, was 0.057% higher at 104.54, close to the six-week high of 104.73 it touched last week.

For Tuesday, the trader sees the peso moving between PHP 56.15 and PHP 56.40 per dollar, while Mr. Ricafort expects it to range from PHP 56.15 to PHP 56.35. — A.M.C. Sy with Reuters