Peso may climb further vs dollar on Fed bets after soft jobs data

THE PESO could climb against the dollar this week as soft US labor data bolstered bets of a US Federal Reserve rate cut this month.

On Friday, the local unit closed at P56.915 per dollar, strengthening by 6.5 centavos from its P56.98 finish on Thursday, data from the Bankers Association of the Philippines showed.

Week on week, the peso also climbed by 15 centavos from its P57.13 close on Aug. 29.

The peso rose against the dollar on Friday following the release of Philippine inflation data for August, which supported expectations of another cut by the Bangko Sentral ng Pilipinas (BSP) this year as it remained below the 2-4% target, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The dollar-peso initially rallied to P57.04 as higher inflation data supported more monetary easing from the BSP. However, profit taking dragged the peso ahead of US NFP (nonfarm payrolls) to be released overnight,” a trader said in a phone interview.

Philippine headline inflation picked up to a five-month high of 1.5% in August from 0.9% in July, the government reported on Friday.

This was slightly higher than the 1.3% median estimate in a ����ý poll of 16 analysts, but was slower than 3.3% in the same month a year ago and was within the BSP’s 1%-1.8% forecast.

It also marked the sixth straight month that the consumer price index was below the central bank’s 2-4% annual target.

For the first eight months, headline inflation averaged 1.7%, matching the BSP’s forecast for the year.

The Monetary Board last month slashed the target reverse repurchase rate by 25 basis points (bps) for a third straight meeting to 5%. It has now lowered borrowing costs by 150 bps since it began its easing cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. said the move puts the policy rate at a “sweet spot” in terms of both inflation and output, signaling that the central bank is nearing the end of its rate-cut cycle.

However, he said they could cut one last time within this year to support the economy if needed.

The Monetary Board’s last two meetings this year are scheduled for Oct. 9 and Dec. 11.

Meanwhile, US job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high of 4.3%, confirming that labor market conditions were softening and sealing the case for a Federal Reserve interest rate cut later this month, Reuters reported.

The Labor department’s closely watched employment report on Friday also showed the economy lost jobs in June for the first time in four and a half years, fanning fears of economic stagnation. Job growth has slowed since April, with economists blaming President Donald J. Trump’s policies, mainly tariffs on imports, an immigration crackdown and mass firings of public workers.

Nonfarm payrolls increased by only 22,000 jobs last month after rising by an upwardly revised 79,000 in July, the Labor department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls would rise by 75,000 jobs after a previously reported gain of 73,000 in July.

Revisions to the establishment survey data also showed payrolls declined by 13,000 jobs in June, the first drop since December 2020, rather than rising by 14,000, as had been reported last month.

Financial markets expect the Fed will deliver a quarter-percentage-point rate cut at its Sept. 16-17 policy meeting, with two more such moves at its remaining two meetings in 2025. The central bank has kept its benchmark overnight interest rate in the 4.25%-4.5% range since December.

The unemployment rate edged up from 4.2% in July to the highest level since October 2021. The household survey from which the jobless rate is derived showed 436,000 people entered the labor force, but employment only increased by 288,000.

Economists were skeptical of the labor force increase. The Trump administration has terminated temporary legal status for hundreds of thousands of immigrants. More people experienced long bouts of unemployment in August.

The average duration of joblessness jumped to 24.5 weeks, the longest since April 2022, from 24.1 in July. There were more people who have permanently lost their jobs.

For this week, the trader said the market will react to the US nonfarm payrolls report released late on Friday.

Mr. Ricafort said soft US jobs data have affected the dollar recently as these increased the chances of a 25-bp cut by the Fed this month.

Both the trader and Mr. Ricafort see the peso moving between P56.70 and P57.20 against the dollar this week. — A.M.C. Sy with Reuters