MANILA – The Philippine peso is bearing the brunt of better prospects for the US economy that is fueling the dollar’s overall strength against most currencies.
A dollar bought P52.58 on Monday, compared with P52.55 on Friday, according the Bankers Association of the Philippines’ Foreign Exchange Summary of trading on the Philippine Dealing System.
“Now, there is optimism about the US economy because of better US jobs data,” said Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines.
US job growth accelerated in May and the unemployment rate dropped to an 18-year low of 3.8 percent, according to a report by Reuters.
The strong employment report added to a string of upbeat economic data, including consumer spending, industrial production and construction spending, the report said.
“Prospects of a US rate hike in June and the good jobs numbers last Friday” is driving the dollar stronger these days, said Jonathan Ravelas, chief market strategist at BDO Unibank.
Analyst see the Fed giving in to inflationary pressures from recent economic data by coming up with another increase in the Federal funds rate.
Inflation accelerated by 4.6 percent in May, the fastest in more than five years and faster than the 4.5 percent reported in April, the government reported on Tuesday.
Prices of goods and services in the country increase by 2.9 percent in May 2017.
Year-to-date, inflation clocked in at 4.1 percent on average, breaching the government’s target range of 2 to 4 percent.
“Faster inflation tends to lead to higher interest rates – policy rate hike that supports the sentiment in favor of the peso,” said Michael Ricafort, head of Economics at Rizal Commercial Banking Corp.
“However, higher inflation alone fundamentally weighs on the peso in the absence of a corresponding upward adjustment of interest rate,” he said. (GMA News)
