Peso rebounds vs dollar on expectations of soft US consumer inflation

The peso recovered against the dollar on Wednesday on expectations of softer US consumer inflation data that could further temper bets of a US Federal Reserve hike next month.

The currency strengthened by eight centavos to close at PHP 61.18 versus the greenback from its PHP 61.26 finish on Tuesday, based on data from the Bankers Association of the Philippines’ website.

The local unit opened Wednesday’s session at PHP 61.35 per dollar, weaker than Tuesday’s close. It dropped to as low as PHP 61.41 against the greenback, while its intraday best was its closing value of PHP 61.18.

Dollars exchanged went down to USD 1.46 billion from USD 1.599 billion previously.

“The dollar-peso closed lower, most likely on expectations of softer US inflation data set to be released tonight,” a trader said in a phone interview.

The local currency was also supported by the softer increase in global crude oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Thursday, the trader sees the peso ranging from PHP 60.90 to PHP 61.30 per dollar, while Mr. Ricafort expects it to trade between PHP 61.05 and PHP 61.30.

The US dollar ticked higher on Wednesday, underpinned by renewed Gulf tensions, with markets focused on upcoming US economic data for signals on the Fed’s policy trajectory, Reuters reported.

Oil prices edged up after the United States and Yemen’s Iran-aligned Houthis reported separate attacks on shipping on Tuesday, with Tehran saying the Strait of Hormuz would remain closed unless Washington accepts its conditions.

Investors buy the safe-haven dollar when concerns about the economic impact of the energy shock from the Iran war intensify.

Analysts said Friday’s soft US jobs data did not weigh heavily on the greenback as markets expect inflation to drive the next Federal Reserve interest rate move.

Fed Bank of Chicago President Austan Goolsbee supported this view on Tuesday by saying he was more concerned about too-high inflation than labor market weakness.

Economists expected data due later in the session to show inflation picked up last month after easing in June, when oil prices fell on hopes of an Iran peace deal.

“Consensus is looking for a reasonably subdued set of numbers,” Chris Turner, global head of markets at ING, said.

“A soft number should drag market pricing of a September Fed rate hike away from a 50% probability in favor of no change,” he added.

The main focus for markets this week is US inflation data due later on Wednesday for clues to the direction of Fed interest rates, as last week’s softer-than-expected jobs report and a press conference by Fed Chair Kevin Warsh last month did little to dispel doubts.

Fed funds futures imply a 50% chance the central bank will leave rates unchanged at its two-day meeting ending Sept. 16, according to the CME Group’s FedWatch tool.

The US dollar index, which measures the greenback’s strength against a basket of six currencies, was up 0.05% at 99.85. — Aaron Michael C. Sy with Reuters