Peso inches up on soft US consumer inflation

The peso appreciated slightly against the dollar on Wednesday as softer-than-expected US consumer inflation data led the market to dial down their US Federal Reserve rate hike bets.

The currency rose by 2.4 centavos to close at PHP 61.686 versus the greenback from PHP 61.71 on Tuesday, data on the Bankers Association of the Philippines’ website showed.

The local unit opened Wednesday’s session stronger at PHP 61.60 versus the greenback. Its best showing was at PHP 61.57, while its intraday low was at PHP 61.695 per dollar.

Dollars exchanged went up to USD 1.146 billion from USD 995.28 million previously.

“The dollar-peso was lower after softer-than-expected US inflation data tempered expectations of a more hawkish Fed stance,” a trader said in a phone interview.

The trader said the market moved mostly sideways on Wednesday.

The dollar was also mostly weaker after US President Donald J. Trump backed off from his earlier threat to impose a 20% charge on cargo shipments through the Strait of Hormuz, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Thursday the trader said the peso could move between PHP 61.50 and PHP 61.75 against the dollar as US producer inflation data due for release overnight could likewise be slower than expected.

Meanwhile, Mr. Ricafort expects the currency to range from PHP 61.50 to PHP 61.70.

The dollar was steady on Wednesday after falling the day before as softer-than-expected inflation data curbed bets for a near-term rate hike from the Federal Reserve, despite concerns that elevated oil prices could fuel inflation risks, Reuters reported.

The US dollar index, which measures the currency against a basket of six peers, was flat at 100.9. It fell 0.4% in the previous session for its biggest pullback in nearly two weeks, dragging it down from the highest levels since July 2.

US consumer inflation slowed more than expected to 3.5% on a year-on-year basis in June, data showed on Tuesday. The headline consumer price index fell 0.4% over the month, the first decline since April 2020, as energy prices retreated.

US Treasury yields fell after the surprisingly soft data dampened market expectations for a near-term rate hike from the Fed, with yields on 2-year US Treasuries off nine basis points from a 16-month high.

Traders were now pricing in about a 65% chance of a rate hike in September, with any tightening later this month all but ruled out, according to LSEG data.

In the Gulf, the latest escalation in hostilities in the Iran conflict pushed oil prices back to one-month highs, keeping inflation risks alive. — A.M.C. Sy with Reuters