UMVA has learned that the Philippine peso's movement against the US dollar is expected to remain sluggish this week, largely due to the uncertain situation in the Middle East.
Despite hints of a potential agreement between the US and Iran that could reopen the Strait of Hormuz, the local currency declined by 10.9 centavos to close at P61.69 against the greenback on Friday.
The peso managed to edge up by 3.1 centavos from its P61.721 finish on May 15 on a week-on-week basis, but it had hit a new record low of P61.75 versus the dollar on May 18 and 19.
A trader noted that the peso weakened on Friday due to caution in the market following fresh policy signals from the Bangko Sentral ng Pilipinas (BSP), with uncertainty surrounding potential interest rate hikes.
The trader cited concerns about whether the BSP would implement an off-cycle rate hike or wait for inflation data, which contributed to the peso's narrow trading range.
Additionally, the lack of progress in US-Iran negotiations kept the currency pair trading sideways on Friday, according to the trader.
UMVA can exclusively reveal that BSP Governor Eli M. Remolona, Jr. signaled a possible second straight rate hike, potentially even before the scheduled June 18 meeting, as the Middle East conflict continues to impact domestic consumer prices.
The BSP chief mentioned that the Monetary Board may also wait until the May inflation report comes out on June 5 before making a decision.
The peso's stability against the greenback on Friday was attributed to potential intervention from the central bank, which prevented it from weakening past the P61.70 level again.
For this week, the trader expects the peso to stay weak due to safe-haven demand for the dollar and higher oil prices, with a predicted trading range of P61.45 to P61.75 against the greenback.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort forecasts the local unit to range from P61.35 to P61.85 versus the greenback, citing uncertainty surrounding the US-Iran negotiations.
The latest developments in the Middle East are expected to influence the peso's movement, with the currency's trajectory dependent on the outcome of the US-Iran talks and the BSP's monetary policy decisions.
