Peso to move sideways

The peso could continue to trade at the PHP 56 level this week as September US consumer inflation data fueled bets of another rate hike from the US Federal Reserve within the year.

The local unit closed at PHP 56.811 per dollar on Friday, weakening by 15.1 centavos from its PHP 56.66 finish on Thursday, data from the Bankers Association of the Philippines showed.

Week on week, the peso also weakened by 19.1 centavos from its PHP 56.62 per dollar finish on Oct. 6.

The local currency opened Friday’s session at PHP 56.77 against the dollar, which was also its intraday best. Its weakest showing was at PHP 56.86 versus the greenback.

Dollars exchanged went down to USD 911.12 million on Friday from USD 1.25 billion on Thursday.

The peso weakened against the dollar on Friday after the release of faster-than-expected US consumer price index (CPI) data raised expectations of another 25-basis-point (bp) hike from the Fed within the year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For this week, Mr. Ricafort sees the peso ranging from PHP 56.55 to PHP 56.95 per dollar as the CPI data and Fed expectations continue to drive trading.

US consumer prices increased in September amid a surprise surge in rental costs, but a steady moderation in underlying inflation pressures supported financial market expectations that the Federal Reserve would not raise interest rates next month, Reuters reported.

The consumer price index increased by 0.4% last month. The CPI soared by 0.6% in August, which was the largest gain in 14 months.

In the 12 months through September, the CPI advanced 3.7% after rising by the same margin in August. Year-on-year consumer prices have come down from a peak of 9.1% in June 2022. Economists polled by Reuters had forecast the CPI would gain 0.3% on the month and 3.6% on a year-on-year basis.

The Fed kept its benchmark rate unchanged at the 5.25% to 5.5% range at its Sept. 19-20 meeting.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will hold its next policy meeting from Oct. 31 to Nov. 1.

The consumer inflation data also led to higher US Treasury yields and a generally stronger dollar on Friday, Mr. Ricafort said.

US Treasury yields rose and the dollar strengthened while global stock markets fell on Thursday after data showed US consumer prices increased more than expected in September

That helped to underpin some views in the market that US interest rates may need to remain high for longer.

An auction of US 30-year bonds showing poor demand also sent Treasury yields higher. In afternoon trading, US benchmark 10-year yields were last up 10.2 bps at 4.699%, after hitting two-week lows of 4.53% earlier in the session.

In the foreign exchange market, the dollar index, a measure of the US currency against six others, jumped by 0.85% to 106.550 in its biggest single-day gain since March 15. The dollar rose more than 1% against sterling, and the Australian and New Zealand dollars. — with Reuters