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Peso weakens as US inflation, rate hike bets fuel dollar’s rise


THE PESO weakened on Monday due to broad dollar strength ahead of the release of the January US consumer price index (CPI) report on Tuesday.

The local currency closed at P54.76 versus the greenback on Monday, declining by 34 centavos from Friday’s P54.42 finish, Bankers Association of the Philippines data showed.

The peso opened Monday’s trading session stronger at P54.50 per dollar, which was also its intraday best. Its weakest showing was at P54.87 against the greenback.

Dollars traded went down to $955.85 million on Monday from $1.248 billion on Friday.

The peso declined against the dollar as the greenback neared five-week highs amid inflation and rate hike bets, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A trader also said the dollar was “generally strong” ahead of the release of the US CPI report.

“Also, the usual mid-month corporate demand helped the dollar,” the trader added.

The dollar edged toward a five-week high versus major peers on Monday as the Japanese yen slid and investors increased bets on the US Federal Reserve keeping monetary policy tight for longer, Reuters reported.

The dollar rose 0.7% to 132.48 yen as traders reassessed their expectations of the policy stance of the likely new Japanese central bank governor, who is due to be officially announced on Tuesday.

The euro and pound were both steady on the day against the dollar, with the European common currency at $1.0685 and sterling at $1.206, leaving the dollar index, which tracks the US currency against six major peers, at 103.61.

The index reached 103.8 in early trade. A break past 103.9 would have taken it to the highest since early January.

A strong reading from the US CPI data would drive expectations of tighter monetary policy from the Federal Reserve, likely sending the dollar higher.

Much stronger than expected US jobs data released at the start of February suggests the economy is performing strongly, meaning there is less danger for the Fed in keeping rates elevated.

The US central bank hiked its fed funds rate by 25 basis points (bps) to a range between 4.5% and 4.75% at its Jan. 31 to Feb. 1 meeting. This brought cumulative increases since March 2022 to 450 bps.

The Fed’s next policy review is on March 21-22.

For Tuesday, Mr. Ricafort expects the peso to trade between P54.65 and P54.85 per dollar, while the trader sees it moving from P54.50 to P55. — A.M.C. Sy with Reuters

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