Peso flat ahead of Fed, BSP policy reviews

THE PESO ended flat against the dollar yesterday as market players stayed on the sidelines ahead of the US inflation data.

The local currency ended Tuesday’s session at P52.04 versus the greenback, flat from its finish the previous day.

The peso traded sideways the whole day, opening the session at P52 per dollar, which was also its best showing for the day. Its intraday low, meanwhile, was at P52.06 versus the greenback yesterday.

Dollars traded declined to $359.8 million on Tuesday from the $507.9 million that changed hands in the previous session.

Traders said market players preferred to stay on the sidelines waiting for fresh leads, particularly US inflation data which was set for release yesterday evening.

Inflation has been a focal point for the Federal Reserve’s monetary policy, and could speed up the tempo of interest rate hikes this year.

“The peso stayed at the sides [yesterday] amid uncertainty on the US inflation data…,” a trader said in an e-mail.

According to Reuters, the US consumer price index (CPI) likely landed at 0.2% for both headline and core inflation month-on-month. This is lower than the higher-than-expected 0.5% increase in headline inflation in January and the 0.349% gain in core inflation.

For Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, the inflation rate will slightly pick up from January.

“I expect a slightly higher inflation rate from January,” he said in a text message, adding that this would suggest for an interest rate hike coming from the US Federal Reserve next week.

“This suggests that interest rates are surely to be increased during the upcoming Fed meeting. Thus, there will be a downward pressure on the peso largely this week.”

Aside from US inflation data, a second trader said market players are also waiting for fresh leads from the monetary policy meeting of the Bangko Sentral ng Pilipinas next week.

Mr. Asuncion said he is not expecting an interest rate hike from the domestic central bank.

For today, the traders are expecting the peso to move between P51.95 and P52.20.

“[T]he local currency is expected to depreciate amid indications of a likely stronger US inflation reading,” the first trader noted.

Most Asian currencies traded in a tight range ahead of the crucial inflation data from the United States.

“Today’s movement is relatively small but steady because there is US inflation data due this evening… if the consumer price index comes in the middle of or below market expectations, you’ll see a rise in risk appetite, but if the CPI comes in higher, I think it will dent market sentiment,” Gao Qi, Asia FX strategist at Scotiabank, said on Tuesday. — Karl Angelo N. Vidal with Reuters