Peso may strengthen further vs dollar as jobs data boost Fed easing expectations

The peso could strengthen further against the dollar this week after US unemployment increased less than expected in August, bolstering expectations of a rate cut by the US Federal Reserve this month.

The local unit closed at PHP 55.905 per dollar on Friday, strengthening by 30.5 centavos from its PHP 56.21 finish on Thursday, Bankers Association of the Philippines data showed.

This was the peso’s first time to return to the PHP 55-per-dollar level in almost six months. It was also its best finish since its PHP 55.58-a-dollar close on March 18.

Week on week, the peso appreciated by 20.6 centavos from its PHP 56.111 finish on Aug. 30.

The peso surged against the dollar on Friday following the US employment data released the day prior, Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

The dollar’s broad decline on Friday before the release of US nonfarm payrolls data that night also boosted the peso, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar briefly hit a one-month low versus the yen and a one-week low against the euro on Friday, as a mixed bag of US job market indicators bred caution ahead of a crucial monthly payrolls report later in the day, Reuters reported.

For this week, Mr. Roces said the peso’s movement against the dollar will depend on the US nonfarm payrolls report released on Friday.

US employment increased less than expected in August, but a drop in the jobless rate to 4.2% suggested the labor market was not falling off the cliff to warrant a half-point interest rate cut from the Federal Reserve this month, Reuters reported.

The closely watched employment report from the Labor department on Friday also showed solid wage growth last month, which should help to support consumer spending and keep the economy out of recession for now. Nonetheless, labor market momentum has slowed, with 86,000 fewer jobs added in June and July than previously reported.

The report led to a chorus of Fed officials declaring that the US central bank was ready to start cutting rates at its policy meeting in about two weeks. Higher borrowing costs are curbing overall demand in the economy.

The release of August US consumer inflation data on Sept. 11 (Wednesday) could also affect peso-dollar trading this week, Mr. Ricafort added.

He expects the peso to range from PHP 55.60 to PHP 56.10 against the dollar this week. — A.M.C. Sy with Reuters