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Peso may rise on slower inflation expectations

THE PESO is likely to rebound versus the greenback this week on expectations of slower inflation in June.

The local unit closed at P49.20 per dollar on Friday, weakening by nine centavos from its Thursday finish of P49.11, based on data from the Bankers Association of the Philippines. This was the peso’s weakest close in nearly a year or since it ended at P49.25 per dollar on July 27, 2020. It also shed 71.9 centavos from its P48.481-per-dollar finish on June 25.

The peso depreciated on Friday as investors flocked to the greenback on the back of an expected rebound in the US job market in June, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a text message.

Data from the US Labor department released on Friday showed nonfarm payrolls increased by 850,000 jobs in June, higher than the 700,000 estimated additional jobs in a Reuters poll. The increase also surpassed the 583,000 new jobs in May.

The report also showed that women, who were the hardest hit by the pandemic, took nearly half of the 9.3 million job openings last month. Reuters reported.

The peso’s weakness last week was also caused by market concerns on the increasing possibility of an earlier unwinding of easy monetary policy in the US amid improving economic data, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

Federal Reserve Bank of San Francisco President Mary Daly said the US central bank may be able to start reducing “a little bit” of its extraordinary support for the US economy by the end of this year, Reuters reported.

“The economy is really shaping up nicely,” Ms. Daly told the Associated Press in an interview, a recording of which was provided to Reuters by the San Francisco Fed.

Fed policy makers have been surprised at the strength of the US recovery this year, fueled by $2.8 trillion in federal pandemic aid and a faster-than-expected rollout of vaccines against COVID-19. 

That has touched off an internal debate over when and how to start reducing their purchases of Treasuries and mortgage-backed securities, which they had promised to continue doing at a pace of $120 billion a month until the economy makes “substantial further progress” towards the Fed’s employment and inflation goals.

For this week, Mr. Asuncion said the market is waiting for June inflation data, which will be released by the Philippine Statistics Authority (PSA) on Tuesday, July 6.

A BusinessWorld poll of 14 analysts yielded a median estimate of 4.3% for June inflation, matching the midpoint of the 3.9% to 4.7% estimate given by the Bangko Sentral ng Pilipinas (BSP) for the month.

If realized, this will mark the sixth straight month of inflation exceeding the BSP’s 2-4% target for the year and will be faster than June 2020’s 2.5% print. Still, this would be slower than the 4.5% in May.

Analysts said the better supply conditions that likely brought down food prices and easing transport prices will be key factors for slower inflation in June. On the other hand, the sustained increase in global oil prices continues to be an upside risk.

May trade data to be reported on Friday could also affect the peso, RCBC’s Mr. Ricafort said.

The trade deficit stood at $2.73 billion in April, slightly narrower than the $2.75-billion shortfall in March but bigger than the $187.10-billion gap a year earlier, latest PSA data showed.

Exports that month climbed 72.1% to $5.71 billion from a year earlier, while imports surged 140.9% to $8.45 billion.

For this week, Mr. Ricafort gave a forecast range of P48.90 to P49.40 per dollar, while UnionBank’s Mr. Asuncion expects a stronger band of P48.85 to P49.25. — L.W.T. Noble with Reuters

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