Peso weakens on Fed fears following faster-than-expected US inflation

THE PESO weakened versus the dollar on Wednesday following faster-than-expected US consumer inflation in August, which raised bets that the US Federal Reserve will remain aggressive in its meeting next week.

The local unit closed at P57.11 against the greenback on Wednesday, losing 34 centavos from its P56.77 finish on Tuesday, Bankers Association of the Philippines data showed. This is just seven centavos stronger than the peso’s record low of P57.18 set on Sept. 8.

Year to date, the peso has weakened by 11.98% or P6.11 from its P51-per-dollar close on Dec. 31, 2021.

The local unit opened Wednesday’s session at P57.10 versus the dollar. Its weakest showing was at P57.27, while its intraday best was at P57 against the greenback.

Dollars exchanged went up to $989.9 million on Wednesday from $934.45 million on Tuesday.

“The peso depreciated after US consumer inflation reports came out stronger than market expectations,” the first trader said in an e-mail.

“[The peso was] above P57 due to better-than-expected US CPI last night,” a second trader said in a Viber message.

US CPI unexpectedly rose in August amid rising rent and healthcare costs, strengthening the case for another aggressive Fed rate hike.

Consumer inflation edged up by 0.1% to 8.3% last month after being unchanged in July. In the 12 months through August, the CPI increased to 8.3%.

The dollar climbed close to a 24-year peak against the yen on Wednesday as the data boosted bets for another hawkish move by the Fed at its Sept. 20-21 meeting.

Another jumbo Fed hike could prompt more aggressive increases from the Bangko Sentral ng Pilipinas (BSP) to maintain a comfortable interest rate differential, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The BSP has raised benchmark rates by 175 basis points (bps) so far since May as it seeks to rein in rising prices. The Fed, for its part, has hiked by 225 bps since March.

For Thursday, the first trader said the peso may weaken further due to the US producer inflation report that was scheduled to be released overnight.

The first trader and Mr. Ricafort expect the local unit to move within P57 to P57.20 against the dollar. — K.B. Ta-asan

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