Currencies 3 MIN READ

USD/PHP 2023 outlook: Don’t bet on a sustainably stronger peso

For those watching the movement of the dollar-peso exchange rate, the recent strengthening of the peso, while desirable for some, may be fleeting.

December 8, 2022By Patty Membrebe
309044201_1550789265368120_7578605180915282153_n (1)

This article is exclusive to Metrobank preferred clients.

Log in your Wealth Manager account to get access to investment insights, bank views, and webinar videos.

In the past week, the peso strengthened 1.12% versus the US dollar. Year-to-date, however, the local currency has weakened by as much as 13.6%.

The current dip in the dollar-peso exchange rate comes on the heels of a downward momentum in the broad US dollar index, as markets become more optimistic about the US Fed slowing the pace of rate hikes and a possible China reopening next year.

After trading at 20-year highs this year, the US dollar has come off its peak. Now, the question is: Will the US dollar continue to weaken in the coming months?

We cite three main reasons why we think the answer is no.

 1. Negative real rates and a still narrow interest rate differential (IRD).

Our base case for the US economy in 2023 is a “bumpy” soft landing, characterized by modestly positive GDP growth (0% to 1%, in line with 2022 levels) and moderating inflation. We estimate 2023 full-year US average headline inflation to slow to 4.3%, from an estimated average of 8.1% in 2022.

After four consecutive 75-bp hikes since June, we expect the US Fed to slow their tightening by 50 basis points (bps) to 4.5% (from 4% currently) in the n

Read More Articles About: