Peso likely to strengthen

THE PESO is seen to strengthen against the dollar this week following the continuation of trade negotiations between the United States and China amid increased tariffs on Chinese goods.

The local unit ended last week at P52.12 versus the greenback, up 18 centavos from P52.30 finish the previous day, as markets cheered the 25-basis-point cut in the Bangko Sentral ng Pilipinas’ (BSP) benchmark rates.

However, the peso declined week-on-week from the P51.85-per-dollar finish last May 3.

Michael L. Ricafort, Rizal Commercial Banking Corp. economist, said the peso will likely strengthen versus the US unit this week on the downward correction of the dollar against major global currencies.

“US dollar corrected lower versus major global currencies as US-China trade talks continued and will resume in China even after the US raised tariffs on some Chinese imports…,” Mr. Ricafort said in a text message on Sunday.

The trade war between the world’s two largest economies simmered anew after the US last week raised levies on $200 billion worth of Chinese goods to 25% from the previous 10%. Beijing quickly vowed to take “necessary countermeasures” against Washington.

Despite these, Chinese Vice Premier Liu He assured the negotiations “have not broken down,” describing his meeting with senior US officials as “candid and constructive” even as their latest meeting in Washington ended without a deal.

A market analyst however said the dollar is expected to “move with an upward bias” in the first two days of the week following “US threats to further impose tariffs on remaining imports from China should trade disputes remain unresolved within the next three to four weeks.”

The market watcher added that expectations of a cut in BSP’s reserve requirement ratio (RRR) may boost the dollar by reducing the relative attractiveness of peso investments.

Although the central bank made no reduction in the reserve ratio during its latest Monetary Board meeting last Thursday, BSP Governor Benjamin E. Diokno said it will be “on the agenda” during this week’s meeting.

Mr. Diokno previously described big banks’ RRR — which was already reduced by a total of two percentage points last year to 18% — as “really high.” He also cited “room for…one percentage point (cut) every quarter for the next four quarters.”

“Any cut in RRR may still be a positive signal on the local economy and financial markets,” Mr. Ricafort said.

The market analyst added that the dollar’s rise might be tempered by a soft US inflation report as well as the comment of Atlanta Federal Reserve President Raphael Bostic that a cut in policy rates might be considered in the event that higher import taxes on Chinese goods would begin to have a negative impact on US economy.

For this week, Mr. Ricafort expects the peso to move between P51.90 and P52.30, while the market analyst gave a P52-P52.70 range.

Markets were closed yesterday for the midterm elections. — K.A.N. Vidal