Earlier this month, the Philippine peso (PHP) exhibited resilience against the US dollar (USD) following disappointing data on US nonfarm employment and manufacturing activities.
This trend persisted into this week, as the PHP continued to strengthen against the greenback in response to the latest US inflation report, further impacting the US dollar index.
Notably, the USD declined by 0.65% against the PHP, closing the day at 55.70 on November 15.
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What’s causing the peso’s rise?
The peso’s upturn against the US dollar came after the most recent consumer price index (CPI) report showed that inflation eased more than anticipated in October 2023.
Notably, the headline annual inflation rate fell to 3.2% last month, down from 3.7% in September and below the consensus estimates of 3.3%. The report boosted hopes the Federal Reserve would end its round of rate hikes, applying pressure on the dollar.
As a result, a basket of currencies including the euro (EUR), Australian dollar (AUD), and the peso, among others, climbed against the world’s reserve currency. Before the CPI report, the AUD was trending lower against the USD amid mixed economic data in Australia.
What’s next for the Philippine peso?
For the near-term outlook, the peso may get exposed later this week because the majority of analysts expect the Philippine central bank to skip a rate hike at the upcoming policy meeting. This would leave the key rate unchanged at 6.5% after an off-cycle 25 basis point (bps) hike last month.
The inflation in Southeast Asian countries eased for the first time in three months in October to 4.9%, although it is still higher than the central bank’s target range of 2%-4%. Core inflation, which leaves out volatile food and energy costs, fell to a 13-month low.
Rate increases typically bode well for national currencies. On the other hand, skipping the raise may cause a contrary effect on the peso. The central bank is set to announce its decision on Thursday, November 16.
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