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Peso seen to trade sideways vs dollar before Fed, BSP reviews

THE PESO could trade sideways against the dollar this week on expectations that the US Federal Reserve will pause its tightening cycle at its policy meeting this week.

The local currency closed at P56.05 versus the dollar on Friday, strengthening by six centavos from Thursday’s P56.11 finish, data from the Bankers Association of the Philippines’ website showed.

Week on week, however, the peso declined by 16 centavos from its P55.89 finish on June 2.

The local unit opened Friday’s session at P55.999 per dollar. Its weakest showing was at P56.06, while its intraday best was at P55.90 against the greenback.

Dollars traded rose to $979.2 million on Friday from the $957 million recorded on Thursday.

The peso strengthened on Friday amid higher-than-expected US jobless claims, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar bounced off two-week lows on Friday as investors awaited inflation data and the Federal Reserve’s interest rate decision next week for any new clues on how high the US central bank is likely to hike rates, Reuters reported.

The Fed is expected to hold rates steady at its June 13-14 meeting, but is likely to remain hawkish and indicate a probable hike in July as inflation stays above its 2% target.

The dollar index, which measures the currency against six major peers, rose by 0.22% to 103.53.

The greenback is largely rangebound as investors wait for clearer signs of whether the economy will remain strong and inflation elevated, or if it is headed towards a contraction.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits surged to the highest in more than 1-1/2 years last week.

Mr. Ricafort added that lower global crude oil prices also supported the peso.

On Friday, oil fell by more than $3 on reports that the US would give Iran sanctions relief to export oil in return for Tehran reducing uranium enrichment.

Brent crude settled down by 99 cents or 1.3% at $75.96 a barrel, while US West Texas Intermediate crude settled down by $1.24 or 1.7% at $71.29.

For this week, the peso could continue to trade sideways against the dollar as the Fed is expected to keep borrowing costs steady at its June 13-14 meeting, a move which could be matched locally, Mr. Ricafort said.

The US central bank raised borrowing costs by 25 basis points (bps) last month, bringing the fed funds rate to 5% to 5.25%.

It has hiked borrowing costs by 500 bps since March 2022.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) paused its aggressive monetary tightening last month and signaled it would put the key rate on hold for its next two to three meetings.

The BSP raised policy rates by 425 bps from May 2022 to March 2023.

The Monetary Board will next meet to review policy on June 22.

For this week, Mr. Ricafort sees the peso trading between P55.75 and P56.25 a dollar.

Philippine financial markets will be closed on Monday for the Independence Day holiday. — A.M.C. Sy with Reuters

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