Peso weakens on expectations of faster inflation

THE PESO weakened versus the greenback on Thursday on expectations that February inflation data to be released on Friday would be faster than last month’s print.

The local unit closed at P48.62 per dollar on Thursday, retreating by 14 centavos from its P48.48 finish on Wednesday, data from the Bankers Association of the Philippines showed.

The peso started Thursday’s session at P48.53 per dollar, which was also its intraday best. Meanwhile, its weakest showing was at P48.65 against the greenback.

Dollars traded decreased to $817.23 million on Thursday from the $1.094 billion logged on Wednesday.

The peso dropped versus the dollar as investors expect a faster February headline inflation print, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

A BusinessWorld poll of 16 analysts last week yielded a median estimate of 4.8% amid elevated food and fuel prices. If realized, this would be the second straight month of headline inflation beyond the central bank’s 2-4% target range and also the quickest since the 5.1% print in December 2018.

Inflation stood at 4.2% in January. The Philippine Statistics Authority will release February inflation data this Friday.

Meanwhile, a trader attributed the peso’s weakness to the market’s reaction to new signals from the US Federal Reserve on quantitative easing.

“The peso weakened after Chicago Fed President Charles Evans hinted in his speech about the possibility of extending the maturities of Fed’s asset purchases,” the trader said in an e-mail.

Mr. Evans said the recent trend of faster rise in bond yields reflect improvements in the economy, Reuters reported. He said despite the increase, yields are still below the pre-pandemic 1.75% and are being held down in part by global demand for safe assets.

For today, Mr. Ricafort expects the peso to move within the P48.55 to P49.70 band versus the dollar while the trader gave a forecast range of P48.50 to P48.70. — L.W.T. Noble with Reuters