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Peso climbs to over six-month high vs dollar

THE PESO strengthened to an over six-month high against the dollar on Tuesday as weak services activity data and expectations of easing inflation out of the United States fueled hopes of smaller rate hikes from the US Federal Reserve.

The local currency closed at P54.87 versus the greenback on Tuesday, climbing by 24 centavos from Monday’s finish of P55.11, data from the Bankers Association of the Philippines showed.

This is the peso’s best finish since it closed at P54.77 a dollar on June 28, 2022.

The peso opened Tuesday’s trading session stronger at P54.95 per dollar, which was already its weakest showing for the day. Its intraday best was at P54.80 against the greenback.

Dollars traded went down to $1.067 billion from $1.219 billion on Monday.

“The peso strengthened amid growing views of a softer 25-bp (basis point) policy rate hike from the US Federal Reserve after the US manufacturing PMI (purchasing managers’ index) was reported below the 50-level, signifying contraction in the manufacturing sector,” a trader said in a Viber message.

The Institute for Supply Management reported on Friday that US non-manufacturing PMI dropped to 49.6 last month from 56.5 in November, the first time since May 2020 that it fell below the 50 threshold.

“The peso and Asian/global currencies also gained versus the US currency ahead latest US consumer price index (CPI) data on Jan. 12, expected by the markets to ease further to 6.5% in December 2022 from the 11-month low of 7.1% posted in November 2022… after slower-than-expected US wage inflation data lately,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Any further easing in the US CPI data would lead to reduced need for further Fed rate hikes for the coming months, at the very least, especially if it eventually goes to the Fed’s target of 2%,” Mr. Ricafort added.

The US central bank last year raised borrowing costs by 425 bps, bringing the fed funds rate to a 4.25%-4.5% range.

The trader said expectations of softer US CPI data may cause the peso to appreciate further against the dollar this week.

The trader sees the peso moving between P54.70 and P54.95 versus the greenback on Wednesday, while Mr. Ricafort gave a slightly weaker P54.75 to P55 range. — AMCS

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