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Peso may weaken further vs dollar

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THE PESO may continue to weaken versus the greenback this week on safe-haven demand due to fears of a global economic slowdown and expectations of further aggressive action from the US central bank.

The local unit finished at P55.92 per dollar on Friday, rebounding by 14 centavos from its P56.06 close on Thursday, data from the Bankers Association of the Philippines showed.

Still, the local unit weakened by 83 centavos from its July 1 close of P55.09 per dollar.

The peso opened Friday’s session at P55.90 against the dollar. Its intraday best was at P55.845 while its weakest showing for the day was at P56.13 versus the greenback.

Dollars exchanged declined to $1.07 billion on Friday from $1.11 billion on Thursday.

The peso strengthened versus the dollar on Friday after hawkish signals from the Bangko Sentral ng Pilipinas (BSP) chief, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in an e-mail.

BSP Governor Felipe M. Medalla last week said the central bank is prepared to raise its policy rate by 50 basis points (bps) at their Aug. 18 meeting to keep inflation in check after the peso on Thursday breached the P56 level against the dollar to move closer to its record low.

He said the US Federal Reserve’s hawkish stance has placed “strong depreciation pressures” on global currencies such as the peso, which adds to inflation risks. The Fed last month raised its benchmark rates by 75 bps and the market is pricing in another hike of the same magnitude at its July 26-27 review.

The Monetary Board has raised benchmark interest rates by a total of 50 bps so far this year via 25-bp hikes at its May 19 and June 23 meetings, bringing the policy rate to 2.5%. Mr. Medalla also said last week that the BSP may hike rates by at least 100 bps more this year.

For this week, the dollar will continue to be supported by safe-haven demand amid fears of a global slowdown and more aggressive hikes from the Fed, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

Still, the BSP’s signals of a 50-bp hike next month could provide support for the peso, Mr. Asuncion said.

RCBC’s Mr. Ricafort said the market will continue to monitor policy signals from both the Fed and the BSP and their implication on interest rate differentials, which could affect the peso.

He said investors are awaiting the release of latest US inflation data and the Fed’s Beige Book on July 13, as this could give some hints on the US central bank’s future policy path.

Mr. Ricafort sees the peso moving within P55.60 to P56.10 per dollar this week, while Mr. Asuncion expects the local unit to trade at the P55.55 to P56.50 levels. — Keisha B. Ta-asan

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