August 29, 2022

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Peso may weaken further vs dollar as Powell says US rates to remain high

THE PESO may decline further against the dollar following hawkish remarks from the US Federal Reserve chief, causing global recession worries anew. — BW FILE PHOTO

THE PESO may continue to depreciate against the dollar this week after the US Federal Reserve chief said the US economy may see slower growth as they continue to raise rates to bring inflation back within target.

The local unit closed at P56.02 on Friday, strengthening by four centavos from its P56.06 finish on Thursday, data from the Bankers Association of the Philippines showed.

However, week on week, the peso sank by nine centavos from its P55.93-per-dollar close on Aug. 19.

The peso opened Friday’s session at P56.03 per dollar. Its weakest showing was at P56.085, while its intraday best was at P55.995 versus the greenback.

Dollars exchanged dropped to $804.5 million on Friday from $1.058 billion on Thursday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the peso’s climb on Friday to separate reports showing the government posted a narrower budget deficit and less hot money outflows in July.

The National Government’s budget deficit narrowed in July as revenues grew by double digits, the Bureau of the Treasury (BTr) reported on Friday.

The BTr said the budget gap stood at P86.8 billion in July, 28.41% lower than the P121.2 billion in the same month a year ago.

In the first seven months of 2022, the budget deficit narrowed to P761 billion, 9.11% lower than the P837.3-billion gap a year ago.

Meanwhile, outflows of short-term foreign investments slowed in July, as the Bangko Sentral ng Pilipinas (BSP) continued to tighten monetary policy.

Data released by the central bank last week showed transactions on foreign investments registered with the BSP through authorized agent banks saw a net outflow of $103.14 million in July, the smallest outflow in two months.

For the first seven months, foreign portfolio investments yielded a net inflow of $625 million, a turnaround from the $446-million net outflows in the same period last year. The BSP expects “hot money” to yield a net inflow of $4.5 billion in 2022.

Meanwhile, MUFG Global Markets Research Currency Analyst Sophia Ng said the peso depreciated versus the dollar week on week as the market anticipated a hawkish speech from the Fed chief on Friday.

“The main driver of peso weakness last week was dollar strength as euro dropped below parity and investors anticipated a hawkish Fed at the annual Jackson Hole Symposium,” Ms. Ng said in a research note on Monday.

Fed Chair Jerome H. Powell said in his speech on Friday that the US will see slower economic growth and an increase in unemployment as the central bank continues to raise rates to fight rising inflation.

Mr. Powell said the Fed will raise rates as high as needed and would keep them there “for some time” to bring down inflation.

The Fed next meets to discuss policy on Sept. 20-21. It has raised rates by 225 bps so far since March, including back-to-back 75-bp hikes in June and July.

The Fed’s continued hawkishness will cause the peso to depreciate further against the dollar this week amid risks of a global recession, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

“Extended dollar gains amid euro weakness and higher oil prices would continue to add downward pressure on the peso and bring it closer to record lows against the dollar,” Ms. Ng added.

The US dollar surged to a 20-year high against a basket of currencies on Monday after Mr. Powell signaled interest rates would be kept higher for longer to bring down soaring inflation, Reuters reported.

The dollar index scaled to a fresh two-decade peak of 109.44 in the Asia trade, with greenback strength pushing other major currencies to new lows and putting pressure on its emerging markets counterparts.

Meanwhile, US West Texas Intermediate crude futures rose 2 cents on Monday to $93.08 a barrel at 0003 GMT, adding to Friday’s gain.

Brent crude futures were down 27 cents, or 0.3%, at $100.72 a barrel, trimming gains from the previous session.

For this week, Mr. Ricafort sees the local unit moving from P55.70 to P56.20 per dollar, while Mr. Asuncion expects the peso to move within the P55.80 to P56.30 levels. For her part, Ms. Ng gave a wider forecast range of P55.80 to P56.40. — K.B. Ta-asan with Reuters