Peso weakens vs the dollar

The peso dropped against the dollar on Monday as the market consolidated after the local currency hit a five-month high on Friday.

The local unit closed at PHP 56.38 per dollar on Monday, weakening by 26.9 centavos from its PHP 56.111 finish on Friday, Bankers Association of the Philippines data showed. Friday’s close was the peso’s best showing in more than five months or since its PHP 56.03-a-dollar finish on March 21.

The peso opened Monday’s session at PHP 56.22 against the dollar, which was already its intraday best. Its weakest showing was at PHP 56.40 versus the greenback.

Dollars exchanged fell to USD 604.9 million on Monday from USD 1.24 billion on Friday.

Only interbank foreign exchange trading pushed through on Monday after the suspension of government work due to inclement weather caused by Tropical Storm Enteng.

“The peso weakened from bargain hunting by market participants after the local currency reached near the P56 level last Friday,” a trader said in an e-mail.

The market also reacted to the release of July US personal consumption expenditures (PCE) price index data over the weekend, which affirmed expectations of a rate cut by the Federal Reserve this month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US PCE price index rose 0.2% in July after an unrevised 0.1% gain in June, the Commerce department said on Friday, matching economists’ forecasts, Reuters reported.

The data look unlikely to divert the Fed, which tracks the PCE price measures as an inflation gauge for monetary policy, from lowering interest rates by at least 25 basis points (bps) this month.

In the 12 months through July, the PCE price index increased 2.5%, matching June’s gain and beating the 2.6% gain expected by economists polled by Reuters.

The Fed has maintained its policy rate in the current 5.25%-5.5% range for more than a year, having raised it by 525 bps in 2022 and 2023.

For Tuesday, the trader said the peso could weaken ahead of a likely a likely robust US manufacturing report.

The trader sees the peso moving between PHP 56.30 and PHP 56.55 per dollar, while Mr. Ricafort expects it to range from PHP 56.25 to PHP 56.45.

Meanwhile, the dollar edged down on Monday but remained within striking distance of its highest level in almost two weeks, as investors’ focus moved to a US jobs report due at the end of this week, Reuters reported.

The dollar index weakened by 0.10% to 101.65, after hitting 101.79, a level not seen since Aug. 20.

US payrolls, due on Friday, will be crucial after Fed Chair Jerome H. Powell pivoted from a battle against inflation to a readiness to protect against job losses.

Economists surveyed by Reuters expect the addition of 165,000 US jobs in August, up from an increase of 114,000 in the previous month, and the unemployment rate ticking lower to 4.2%.

Analysts say the job figures will determine the magnitude of the Federal Reserve’s expected rate cut. Markets have already priced in for weeks a cut of 25 bps.

Traders currently lay 33% odds of a 50-bp Fed rate cut this month, while fully pricing in a quarter-point cut. A week earlier, expectations were 36% for the larger reduction. — A.M.C. Sy with Reuters