Peso may falter as market sees faster inflation

THE PESO will likely retreat this week due to safe-haven demand for the greenback caused by expectations of quicker January inflation.

The local unit closed at P48.08 per dollar on Friday, appreciating by three centavos from its P48.11 finish on Thursday, data from the Bankers Association of the Philippines showed.

However, it was nearly unchanged from its P48.085-per-dollar close a week earlier.

The peso climbed on Friday following the rebound of US stocks overnight.

This soothed market fears from previous days caused by hedge funds selling long positions to cover shorts in relation to the “Reddit rally” that fueled shares of GameStop and other volatile stocks.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the peso saw some weakness last week on market cautiousness amid a possible delay in a proposed US stimulus.

This week, the market will mainly move in anticipation of January inflation data due on Friday, Security Bank’s Mr. Ricafort said.

A BusinessWorld poll of 16 economists last week yielded a median estimate of 3.6% for January headline inflation, with economists citing higher food and oil prices. The median is closer to the higher end of the 3.3% to 4.1% estimate given by the Bangko Sentral ng Pilipinas (BSP) for the month as well as its 2-4% target for the year.

If realized, January would mark the fourth consecutive month of quicker inflation as this will be faster than both December’s 3.5% and the 2.9% print in January 2020.

UnionBank’s Mr. Asuncion said safe-haven demand for the dollar may cause the peso to depreciate this week, as dovish signals from the US Federal Reserve last week were not enough to calm the market amid lingering economic concerns.

The Fed last week maintained its key policy rate near zero and assured it will keep providing support until a rebound from the recession becomes more solid.

Mr. Ricafort expects the peso to move within P48.03 to P48.13 versus the dollar this week, while Mr. Asuncion sees a wider trading band of P48.05 to P48.25. — L.W.T. Noble with Reuters

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