Peso may climb vs dollar as US central bank chief fails to signal taper timing

THE PESO is likely to strengthen versus the dollar this week after the US Federal Reserve said it would continue to support the world’s largest economy.

The local unit finished trading at P49.955 per dollar on Friday, appreciating by 2.5 centavos from its P49.98 close on Thursday, based on data from the Bankers Association of the Philippines. It likewise strengthened by 41.5 centavos from its P50.37-per-dollar close a week earlier.

The peso rose after the country’s balance of payments (BoP) yielded a surplus, reflecting higher dollar buffers than initially reported, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed the country’s BoP position stood at a surplus of $642 million in July, significantly bigger than the $8-million surfeit seen a year earlier. It was also a turnaround from the $312-million gap in June and ended two months of the BoP position in deficit.

The BSP attributed this mainly to the foreign currency deposits of the National Government and its net income from investments abroad.

The July BoP position reflects the country’s final gross international reserves (GIR) level of $107.15 billion as of end-July, higher than the preliminary figure of $106.548 billion and the $105.76 billion seen at end-June.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the peso appreciated as more vaccines arrived in the Philippines, boosting reopening prospects.

Finance Secretary Carlos G. Dominguez III on Thursday said the country has already secured 194.89 million vaccine doses.

Fully vaccinated persons in the country made up 16.71% or 18.061 million of the population, based on latest data from the Johns Hopkins University. This is still far from the 70% the government targets to inoculate by end-2021 to achieve herd immunity.

For this week, Mr. Asuncion said the peso could rise following dovish signals from the US central bank chief at the Fed’s Jackson Hole symposium on Friday.

Fed Chairman Jerome H. Powell said there has been clear progress toward maximum employment and that he was of the view that if the US economy evolved broadly as anticipated, “it could be appropriate to start reducing the pace of asset purchases this year,” Reuters reported.

However, he told the Fed’s annual late-August symposium in Jackson Hole, Wyoming, that the timing and pace of tapering does not involve a signal for when interest rates will begin to rise, a message the market perceived as being dovish.

Meanwhile, Mr. Ricafort said manufacturing data to be released this week could also affect foreign exchange trading.

IHS Markit will release the August Philippine Manufacturing Purchasing Managers’ Index (PMI) on Sept. 1. The country’s PMI stood at 50.4 in July, slipping from the 50.8 reading in June but still above the 50 neutral mark that separates contraction from expansion.

For this week, both Mr. Asuncion and Mr. Ricafort expect the peso to move within P49.70 to P50.20 against the dollar. — LWTN with Reuters

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