Peso inches lower on hawkish comments from Fed officials

BW FILE PHOTO

THE PESO weakened against the dollar on Monday following hawkish remarks from US Federal Reserve officials last week.

The local unit closed at P56.86 per dollar on Monday, shedding four centavos from its P56.82 finish on Friday, based on Bankers Association of the Philippines data.

The peso opened Monday’s session at P56.85 per dollar. Its best showing was at P56.84, while its intraday worst was at P57.07 against the greenback.

Dollars exchanged decreased to $897.2 million on Monday from $1.15 billion on Friday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso depreciated slightly due to hawkish statements from Fed officials.

“The peso weakened after hawkish policy comments from Fed officials Waller and George and remarked the US policy rate might be raised above 4%,” a trader said in an e-mail.

Fed Governor Christopher J. Waller on Friday said the US central bank can continue to be aggressive in its fight against inflation if the unemployment rate stays below 5%.

“If the unemployment rate were to stay under 5%, I think we could be really aggressive on inflation. Once it gets over 5 there are going to be obvious pressures to start making tradeoffs,” Mr. Waller said during a speech to the Institute for Advanced Studies in Austria. “If we don’t get inflation down, we’re in trouble.”

Meanwhile, Kansas City Federal Reserve Bank President Esther L. George said US inflation remains far too high, strengthening the case for more rate hikes.

“The case for continuing to remove policy accommodation remains clear-cut,” Ms. George said on Friday in remarks for the Peterson Institute for International Economics. “The key questions are by how much and how quickly.”

These comments add to similarly hawkish remarks from Fed chief Jerome H. Powell on Thursday. Mr. Powell said the US central bank is “strongly committed” to fighting inflation and needs to continue acting strongly to bring prices down.

The peso was also slightly weaker due to data showing that net inflows of foreign direct investments (FDIs) dropped to their lowest level in 13 months, Mr. Ricafort said.

Net inflows of foreign direct investments dropped by 51.5% to a 13-month low of $471 million in June from $971 million a year earlier, data released by the Bangko Sentral ng Pilipinas on Monday showed. FDI net inflows also declined by 36.5% from $742 million in May.

For the first half, FDI net inflows rose by 3.1% to $4.641 billion from $4.503 billion in the same period last year. The central bank expects FDI net inflows to reach $11 billion this year.

“Continued gains in the local stock market today also tempered the peso’s weakness for the day,” Mr. Ricafort added.

The benchmark Philippine Stock Exchange index climbed by 109.75 points or 1.66% to close at 6,715.75 on Monday, while the broader all shares index went up by 39.35 points or 1.12% to 3,545.82.

The trader said the peso may rise against the dollar on Tuesday on expectations of a “softer” US consumer inflation report.

Mr. Ricafort said US consumer inflation likely eased slightly from the 8.5% recorded in July, but will still be among the highest in more than 40 years or since December 1981.

For Tuesday, both Mr. Ricafort and the trader see the peso moving between P56.75 and P56.95 per dollar. — K.B. Ta-asan