THE PESO may see sustained weakness against the dollar this week after stronger-than-expected US economic data led to reduced bets of US Federal Reserve rate cuts.
On Friday, the local unit closed at P58.10 versus the greenback, unchanged from the previous day’s finish, data from the Bankers Association of the Philippines showed.
However, week on week, the peso weakened by 95 centavos from its P57.15-per-dollar close on Sept. 19.
The peso was steady against the dollar on Friday after US gross domestic product (GDP) data for the second quarter was revised higher, which reduced expectations of rate cuts by the Fed, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Mr. Ricafort said the dollar was generally stronger on Friday due to hawkish signals from Fed officials recently amid weak US jobs data.
In the Asian session on Friday, the dollar was steady against the euro and sterling, holding on to steep gains as investors awaited US consumer spending data after better-than-expected growth numbers dampened expectations of further easing by the Federal Reserve this year.
The euro was hovering near a three-week low at $1.1669 while sterling was flat at $1.3347 after touching a near two-month trough on Thursday.
The yen traded at an eight-week low following a new raft of tariffs announced by US President Donald J. Trump, which included a 100% levy on branded drugs, 25% on heavy-duty trucks, and 50% on kitchen cabinets.
The dollar index, which measures the greenback against major currencies, was poised for its biggest weekly advance in two months after figures on US economic growth, unemployment claims, durable goods and wholesale inventories all beat expectations on Thursday.
Markets are now pricing in about a 12% chance of the Fed keeping rates unchanged next month, up slightly from 8.1% a day earlier, according to the CME FedWatch Tool. The cumulative policy easing priced in by the end of the year has also dipped below 40 basis points.
The Commerce department reported on Thursday that US gross domestic product rose by an upwardly revised rate of 3.8% from April through June, higher than the 3.3% initially reported. Economists polled by Reuters did not expect the rate to be revised.
For this week, Mr. Ricafort said the market could take cues from the US economic data released later on Friday as these could affect Fed policy expectations.
He expects the peso to move between P57.75 and P58.45 per dollar this week.
US consumer spending increased slightly more than expected in August as households went on vacation and dined out, keeping the economy on solid ground as the third quarter progressed, while inflation continued to steadily pick up, Reuters reported.
The report from the Commerce department on Friday suggested the economy has so far retained most of its momentum from the April-June quarter. Signs of the economy’s resilience evident in other data last week showing low layoffs and strong demand by businesses for equipment would argue against the Federal Reserve cutting interest rates again this year after the US central bank resumed policy easing this month.
Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.6% last month after an unrevised 0.5% advance in July, the Commerce department’s Bureau of Economic Analysis (BEA) said. Economists polled by Reuters had forecast consumer spending increasing 0.5%.
Spending has marched ahead despite the significant slowdown in the labor market. Consumption is being driven by high-income households as a robust stock market and still-elevated home prices boost their wealth. Fed data this month showed household wealth jumped to a record $176.3 trillion in the second quarter.
Meanwhile, the personal consumption expenditures (PCE) price index increased 0.3% in August after gaining 0.2% in July, the BEA said. PCE inflation was lifted by a 0.3% rise in services, reflecting airline fares, hotel and motel rooms as well as financial services and insurance, housing and utilities.
In the 12 months through August, the PCE price index advanced 2.7%. That was the biggest year-on-year increase since February and followed a 2.6% rise in July.
Excluding the volatile food and energy components, the PCE price index rose 0.2% last month after increasing 0.2% in July.
In the 12 months through August, the so-called core inflation index increased 2.9% after rising 2.9% in July. The Fed tracks the PCE price measures for its 2% inflation target.
The Fed this month cut its benchmark overnight interest rate by 25 basis points to the 4%-4.25% range. Financial markets continued to expect two more rate reductions this year. — A.M.C. Sy with Reuters
