Peso likely to weaken against US dollar this week

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dollar over peso

THE PESO is expected to weaken against the dollar this week, after the latest US labor report showed the continued strengthening of the US economy.

The local currency ended flat against the greenback to close at P52.03 on Friday, following the release of government data showing a wider but lower-than-expected trade deficit in January.

Week-on-week, the peso weakened from its P51.90-per-dollar finish on March 2.

“The dollar might again appreciate as a trend this week following generally upbeat US labor reports in February 2018 and amid expectations of firm US data on inflation and retail sales,” Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines said in an e-mail on Saturday.

“These reports reinforce views of another US rate hike on March 22 even as they might temper hawkish bets of four US rate adjustments in 2018.”

The US Federal Reserve’s Federal Open Market Committee is scheduled to begin its two-day meeting on interest rates on March 20, with an announcement expected on March 21.

According to the US Labor Department on Friday, the economy added 310,000 jobs in February, far from the 200,000 consensus among economists in a Reuters poll. However, the unemployment rate remained steady at 4.1% last month, its lowest since December 2000 although higher than 4% rate in the Reuters poll.

Mr. Dumalagan said the mixed US jobs data will prompt the dollar to “show a slight upward bias against the peso” in the first two days of the week, although “the greenback might not surge dramatically, as growth in US average hourly earnings slowed, tempering speculations of four US rate hikes this year.”

The dollar’s upward trend might continue on Wednesday and Thursday, Mr. Dumalagan said, as the currency might be supported by firm US data on inflation and retail sales.

“US inflation data on both the consumer and producer sides are expected to show stronger readings in February 2018, keeping the US Federal Reserve on track to hike rates again on March 22,” Landbank’s market economist said, adding that the foreign currency might shed some of its strength on Friday due to profit taking and heightened market caution.

“Prior to important events, such as the US monetary policy meeting, some investors may opt to stay on the sidelines and refuse to take large bets.”

Meanwhile, a trader interviewed over the phone on Friday said concerns over the imposition of tariffs on metal may continue to “create a risk-off sentiment and affect the movement of the US dollar in general.”

On Thursday, President Donald J. Trump signed measure imposing 25% tariff on steel and 10% tariff on aluminum, seen as a protectionist policy in favor of US manufacturers.

A day before the signing, 107 House Republicans signed a position urging Mr. Trump to reconsider his decision.

“We urge you to reconsider the idea of broad tariffs to avoid unintended negative consequences to the U.S. economy and its workers,” the Republican lawmakers said in the letter.

For this week, Mr. Dumalagan expects the peso to move between P51.70 and P52.40, while a trader sees the pair to trade from P51.90 to P52.10 today.

“The factors that could reverse the dollar’s projected upward bias include weaker-than-expected US inflation, surprising hawkish remarks from the BSP, and renewed concerns over the protectionist policies of the US,” Mr. Dumalagan noted. — Karl Angelo N. Vidal