Peso weakens on Middle East clashes

The peso depreciated against the dollar on Monday as players sought safety after the United States and Iran traded attacks anew, clouding prospects for a definitive peace deal.

The currency declined by 8.4 centavos to close at PHP 61.599 per dollar from PHP 61.515 on Friday, according to data published on the Bankers Association of the Philippines’ website.

The local unit opened Monday’s session weaker at PHP 61.61 versus the greenback. It climbed to as high as PHP 61.56, while its intraday low was at PHP 61.65 per dollar.

Dollars traded fell to USD 957.5 million from USD 1.43 billion previously.

“The dollar-peso closed a tad higher, tracking the higher dollar index and crude prices amid escalating tensions in the Middle East,” a trader said by phone.

The greenback was generally stronger early on Monday due to hawkish US Federal Reserve expectations coupled with higher global crude oil prices and continued clashes between the US and Iran, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Tuesday, the trader said the peso could trade at PHP 61.40 to PHP 61.70 per dollar as market players await US consumer inflation data and Fed Chair Kevin Warsh’s scheduled appearance before the US Congress this week.

For his part, Mr. Ricafort sees the local unit moving between PHP 61.50 and PHP 61.70.

The dollar slipped on Monday after giving up earlier gains as investors focused on renewed hostilities in the Gulf, while the yen slid following a Reuters report that Japan had no immediate plan to change state pension funds’ asset allocations, Reuters reported.

The US currency rose earlier in the session along with oil prices but later lost ground, with the euro up 0.15% at USD 1.1433. Sterling was flat at USD 1.339, while the Australian dollar was down 0.1% at USD 0.694.

US and Iranian forces exchanged heavy missile and drone assaults at the weekend, with Tehran targeting US facilities in states across the Gulf on Sunday and saying it had again closed the vital Strait of Hormuz shipping route.

Oil prices rose, with Brent crude futures up 3% at USD 78.50 a barrel.

The dollar index, which tracks the currency against six peers, rose as much as 0.3% but was last down 0.2% at 100.83.

“The dollar was obviously the big winner from the war last time. But it’s starting from a pretty different point this time, having strengthened quite a lot and there already having been a fairly lasting repricing of the Fed outlook,” said Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington.

“It’s not clear to me the greenback would gain as much this time if the situation continued to worsen, which I think is probably reflected in trade so far.”

Fed funds futures are pricing an implied 50% probability of two or more rate hikes by the time of the US central bank’s December meeting, up slightly from Friday, according to the CME Group’s FedWatch tool.

Inflation risks are likely to remain in focus with the release of US consumer price index data on Tuesday, producer price index gauges the following day, and Mr. Warsh’s testimony before the House and Senate, Westpac analysts wrote in a research report. — Aaron Michael C. Sy with Reuters