Peso falls against dollar based on US inflation data

The PESO fell against the dollar on Thursday after faster-than-expected US consumer inflation data raised fears of a delay in the start of the US Federal Reserve’s planned policy easing.

The local unit closed at P56.50 against the dollar on Thursday, weakening less than a centavo from Monday’s P56.491, data from the Bankers Association of the Philippines showed.

The peso opened Thursday’s session weaker at P56.53 against the dollar. The worst performance was P56.58, while the intraday high was P56.42 per dollar.

Dollars exchanged rose to $1.31 billion from $1.22 billion on Monday.

The peso weakened as faster-than-expected U.S. inflation could push back the Fed’s rate-cutting cycle. Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said in a Viber message.

U.S. consumer prices rose more than expected in March as Americans continued to pay more for gasoline and rental housing, leading financial markets to anticipate the Federal Reserve would delay interest rate cuts until September, Reuters reported.

The third straight month of strong consumer price readings reported by the Labor Department on Wednesday also suggested the recovery was underwayFThe increase in January and February could not be attributed solely to companies raising prices at the start of the year, as economists had argued.

The consumer price index (CPI) rose 0.4% last month, after rising by the same margin in February, according to the Labor Department’s Bureau of Labor Statistics.

In the 12 months to March, the CPI rose by 3.5%, the highest level since September. The CPI also received a boost as last year’s low value disappeared from the calculation. In February, interest rates rose by 3.2%. Economists polled by Reuters had forecast the CPI to rise 0.3% this month and rise 3.4% year-on-year.

Shortly after the figures, financial markets pushed back their expectations for the first interest rate cut from June to September, according to CME’s FedWatch Tool. They now expect just two rate cuts instead of the three Fed officials envisioned last month. A minority of economists see the window for interest rate cuts closing.

The central bank has kept its policy interest rate within the range of 5.25%-5.5% since July. Since March 2022, it has raised the benchmark rate by 525 basis points.

Before Friday, Mr. Ricafort said he expects the peso to move from P56.40 to P56.60 against the dollar. — LMJC Jocson of Reuters