Peso may drop on hawkish Fed bets

THE PESO is expected to weaken against the dollar this week following hawkish comments from the US central bank chief and stronger US employment data.

The local currency closed at PHP 55.17 versus the greenback on Friday, rising by seven centavos from Thursday’s PHP 55.24 finish, Bankers Association of the Philippines data showed.

Week on week, however, the peso fell by 35 centavos from its PHP 54.82 finish on March 3.

The peso weakened on Friday due to a decline in global crude oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For this week, the peso is expected to decline against the dollar following hawkish comments from US Federal Reserve Chair Jerome H. Powell.

“Despite [the] cooling of Philippine inflation, our traders expect the peso will continue to underperform against the dollar in the coming weeks on Fed Chair Powell’s bombshell of potentially higher policy rate adjustments than what markets have priced in, plus the risk of more US data surprises this quarter,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

Mr. Asuncion added that the Bangko Sentral ng Pilipinas (BSP) could match the Federal Open Market Committee’s (FOMC) move this month.

“Our traders also sense a narrower interest rate differential between the BSP and the FOMC after this month, with the BSP expected to hike by 25 bps (basis points) in response to softer February inflation data and higher January jobless rate. Unless senior BSP officials signal otherwise, the strong dollar narrative could be revived this month,” he said.

Mr. Powell told lawmakers last week that the US central bank will likely need to raise interest rates more than expected in response to recent strong data.

The Fed hiked its target interest rate by 25 bps at its January 31 to February 1 meeting to a range between 4.5% and 4.75%. Since March 2022, the US central bank has raised rates by a total of 450 bps.

Its next meeting is on March 21-22.

US labor data released last week also fanned expectations of an aggressive Fed move. The US economy added a more-than-expected 311,000 jobs last month, while the unemployment rate unexpectedly ticked higher, along with the labor market participation rate.

Meanwhile, the BSP will hold its next review on March 23.

The Philippine central bank hiked benchmark interest rates by 50 bps at its Feb. 16 meeting, bringing the key rate to 6%. The move brought cumulative increases in borrowing costs since May 2022 to 400 bps.

For this week, Mr. Ricafort expects the peso to trade between PHP 54.90 and PHP 55.40 per dollar, while Mr. Asuncion gave a wider forecast range of PHP 54.90 to PHP 55.60 range. The trader sees the peso moving from PHP 54.50 to PHP 55.50. — A.M.C. Sy