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Peso to extend decline vs dollar

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THE PESO will likely weaken against the dollar for the rest of the week as the market awaits the policy meetings of the US Federal Reserve and the European Central Bank (ECB).

On Monday, the local unit plunged to a 12-year low of P52.95 against the greenback, 25 centavos weaker than the P52.70-per-dollar finish logged the previous trading session.

Traders said the peso depreciated due to “continuous market reaction” following local data released last week showing a wider trade deficit and lower foreign exchange reserves.

Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan said last week that the US currency could appreciate on Wednesday and early Thursday ahead of US central bank’s policy decision.

All eyes are on the Fed as it is expected to raise its benchmark rates this week following a similar move in March.

“While some US policy makers are comfortable with a slow pace of interest rate normalization, some are leaning more towards the hawkish side by keeping open the possibility of more aggressive moves ahead,” Mr. Dumalagan said.

He also said “likely firm” data on US consumer and producer price inflation could also fuel speculations of a fourth rate adjustment this year.

However, Rizal Commercial Banking Corp. Economics and Industry Research Division Head Michael L. Ricafort said in a text message that any further Fed rate hike has been widely expected and may have already been priced in by markets.

LANDBANK’s Mr. Dumalagan meanwhile said the dollar might shed some of its gains on Thursday due to profit-taking in anticipation of a “hawkish” meeting of the European Central Bank.

“Recently, ECB chief economist Peter Praet confirmed that the ECB would further concretize its plans to unwind the central bank’s massive bond-buying program during its June 2018 policy meeting,” Mr. Dumalagan said.

“Policy rates are expected to remain at their present levels until well past the end of the ECB’s asset-purchase program,” Mr. Dumalagan said.

Meanwhile, RCBC’s Mr. Ricafort said local leads that investors are looking at include the April overseas Filipino remittances data to be released on Monday as well as the policy meeting of the Bangko Sentral ng Pilipinas on June 21.

For Wednesday, a trader sees the local currency moving between P52.80 and P52.10 versus the dollar, while Mr. Ricafort said the peso may breach the P53 level “within the week.”

Local financial markets will be closed anew on Friday, in observance of Eid al-Fitr. — K.A.N. Vidal