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Peso may continue to climb vs dollar ahead of central bank meetings

THE PESO may continue to climb against the dollar this week in anticipation of rate hikes from the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP), as well as the release of US consumer inflation data.

The local unit closed at P55.37 per dollar on Friday, strengthening by eight centavos from its P55.45 finish on Wednesday, data from the Bankers Association of the Philippines’ website showed.

This was the peso’s strongest close in four months or since it finished at P55.30 against the dollar on Aug. 11.

Week on week, the peso also strengthened by 37 centavos from its P55.74 close on Dec. 2.

The peso opened Friday’s session stronger at P55.27 per dollar. It dropped to as low as P55.39 during the day, while its intraday best was at P55.17 against the greenback.

Dollars exchanged dropped to $944 million on Friday from the $1.158 billion recorded on Thursday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso ended stronger as global oil prices declined further, recording their biggest weekly drops in months.

Oil price settled lower in volatile trading on Friday, with both benchmarks recording their biggest weekly declines in months, as growing recession fears negated any supply woes after weak economic data from China, Europe and the United States, Reuters reported.

US West Texas Intermediate (WTI) crude settled 44 cents lower at $71.02 a barrel, a new low for 2022. Brent crude settled 5 cents lower at $76.10 per barrel.

Both crude benchmarks posted weekly losses of around 10% each. It was the biggest weekly decline since April for the US WTI futures, and since early August for Brent.

The peso also strengthened due to “a highly anticipated seasonal increase in overseas Filipino worker (OFW) remittances and conversion to pesos a few days before the holiday season,” Mr. Ricafort said.

For this week, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said seasonal dollar flows may provide support for the peso ahead of the policy meetings of the Fed and the BSP.

Markets widely expect the Fed to raise borrowing costs by 50 basis points (bps) at their Dec. 13-14 meeting following four straight 75-bp hikes. The US central bank has hiked borrowing costs by 375 bps since March.

Meanwhile, the BSP Monetary Board is likewise expected to raise benchmark interest rates by 50 bps at its Dec. 15 review. It has tightened by 300 bps since May amid rising inflation.

However, Mr. Asuncion said the expected rate hikes from both central banks are mostly priced in already and that a main trading driver for this week could instead be the release of November US consumer price index (CPI) data on Dec. 12, Monday.

US CPI rose by 0.4% month on month in October. In the 12 months through October, US consumer prices increased 7.7%, slower than the 8.2% logged in September.

Other data that could affect peso-dollar trading are reports on Philippine trade and remittances, as well as US data on manufacturing, retail sales and jobs, among others.

For this week, Mr. Ricafort expects the local unit to move from P55 to P55.60 per dollar, while Mr. Asuncion gave a wider forecast range of P55 to P55.75. — A.M.C. Sy with Reuters

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