Peso seen weakening on upbeat US jobs data, Fed

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THE PESO is seen to weaken against the dollar this week as upbeat US economic data and hawkish remarks from Federal Reserve officials will likely support the greenback.

On Friday, the local currency recovered against the dollar, ending at P51.45 per dollar, on the back of profit taking and a surge in remittances.

“The dollar might continue to appreciate as a trend this week because of upbeat US economic reports, likely hawkish remarks from various US Federal Reserve officials, and possibly mixed data from the Philippines,” Guian Angelo S. Dumalagan, market economist of Land Bank of the Philippines (Landbank), said in an e-mail on Saturday.

US job growth surged in January and wages increased further, recording their largest annual gain in more than 8-1/2 years, bolstering expectations that inflation will push higher this year as the labor market hits full employment.

Non-farm payrolls jumped by 200,000 jobs last month after rising 160,000 in December, the US Labor Department said on Friday.

The unemployment rate was unchanged at a 17-year low of 4.1%. Average hourly earnings rose 0.3% in January to $26.74, building on December’s solid 0.4% gain.

That boosted the year-on-year increase in average hourly earnings to 2.9%, the largest rise since June 2009, from 2.7% in December. Workers, however, put in fewer hours last month likely because of bitterly cold weather.

Mr. Dumalagan said the hourly earnings data is the “leading indicator of inflation.”

The robust employment report underscored the strong momentum in the economy, raising the possibility that the Federal Reserve could be a bit more aggressive in raising interest rates this year. The US central bank has forecast three rate increases this year after raising borrowing costs three times in 2017.

Mr. Dumalagan added that likely firm US non-manufacturing data and hawkish remarks from some Fed officials might give the dollar a boost.

This week, Fed officials James B. Bullard and William C. Dudley, among others, will deliver speeches which may fuel expectations of more US rate hikes this year, Landbank’s chief economist said.

“A small but growing minority of investors are already speculating of four US rate hikes this year, higher than the modal forecast of three,” he said.

Ruben Carlo O. Asuncion, chief economist of UnionBank of the Philippines, noted that locally, market players may look to the January inflation report for leads.

“[I’m looking at] expected high inflation rates due to impact of TRAIN,” Mr. Asuncion said in a mobile phone message, referring to the Tax Reform on Acceleration and Inclusion act.

For Mr. Dumalagan, although the Bangko Sentral ng Pilipinas is expected to keep its monetary settings steady in its meeting on Thursday, the stronger-than-expected inflation in January may prompt the central bank to tighten policy settings in future reviews.

The “cautious to hawkish” take of the central bank’s monetary policy meeting might temper dollar’s ascent, he noted.

For this week, Mr. Dumalagan expects the peso to move within P51.20 to P51.80, while Mr. Asuncion gave a slimmer range of P51.50 to P51.80.

“The factors that could reverse the dollar’s forecasted upward bias include any unexpected hawkish moves from the BSP and surprising dovish remarks from US policy makers, especially from incoming Fed Chair [Jerome H.] Powell,” Mr. Dumalagan added. — K.A.N. Vidal with Reuters