Peso sinks to three-week low on faster-than-expected inflation

The peso weakened to a three-week low against the dollar on Tuesday as headline inflation picked up in August after six months of decline.

The local currency closed at PHP 56.80 versus the dollar on Tuesday, weakening by 18 centavos from Monday’s PHP 56.62 finish, data from the Bankers Association of the Philippines’ website showed.

This was the peso’s lowest close in three weeks or since it ended at PHP 56.84-per-dollar on Aug. 15.

The local unit opened Tuesday’s session weaker at PHP 56.70 per dollar. Its intraday best was at PHP 56.68, while its worst showing was at PHP 56.90 against the greenback.

Dollars traded went down to USD 1.52 billion on Tuesday from the USD 1.59 billion on Monday.

The peso depreciated versus the dollar due to faster-than-expected August inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso depreciated today following the upside surprise in Philippine headline inflation for August 2023,” a trader said in an e-mail.

Inflation picked up to a two-month high of 5.3% in August from 4.7% in July, data released by the Philippine Statistics Authority on Tuesday showed.

This was the first time in seven months that inflation quickened year on year. Still, this was below the 6.3% print in August 2022, and was within the 4.8-5.6% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

However, this was above the 4.9% median estimate in a BusinessWorld poll of 18 analysts conducted last week.

August marked the 17th consecutive month that inflation was higher than the BSP’s 2-4% target for the year.

For the first seven months, inflation averaged 6.6%, above the central bank’s 5.6% forecast.

The stronger dollar also affected the exchange rate, Mr. Ricafort added.

Jitters about global growth caused the dollar to rise on Tuesday, sending the euro to its lowest in nearly three months and the Aussie down over 1%, not helped by underwhelming data in China and the Reserve Bank of Australia keeping rates steady, Reuters reported.

The euro was down 0.45% at 1.0747, while sterling fell 0.6% to $1.2555, with both their lowest levels since mid-June after poor activity data in China and Europe drove a risk off tone across asset classes.

The dollar was strong across the board, climbing against China’s currency, and was last up 0.47% at 7.3096 against the yuan traded offshore and up nearly as much in onshore markets.

The greenback also rose 0.56% against the Canadian dollar to USD 1.3669, its highest since late March, and up 0.85% against the Swedish crown at 11.10, its highest since November 2022.

For Wednesday, the peso could recover ahead of a likely softer US services purchasing managers’ index report, the trader said.

The trader sees the peso moving between PHP 56.65 and PHP 56.85 per dollar on Wednesday, while Mr. Ricafort expects it to range from PHP 56.70 to PHP 56.90. — AMCS with Reuters