Peso to move sideways before June CPI

THE PESO could move sideways against the dollar this week as the market awaits the release of June Philippine inflation data, which could ease from the prior month but stay above target amid continued price risks.

On Friday, the currency strengthened by 15 centavos to close at P61.415 per dollar from Thursday’s P61.565 finish.

Week on week, however, the peso declined by 12.5 centavos from its P61.29 close on June 26.

The peso was supported by the dollar’s drop after weaker-than-expected US nonfarm payrolls data eased US Federal Reserve rate hike expectations, a trader said by phone on Friday.

The Japanese yen’s climb following intervention signals also boosted regional currencies, including the peso, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US dollar was heading towards its biggest weekly loss in 12 weeks on Friday after Thursday’s tepid US jobs report cooled market expectations for a near-term Federal Reserve interest rate hike, providing relief for the Japanese yen, Reuters reported.

The dollar fell after US job growth slowed sharply in June and payroll gains for the prior two months were revised lower, prompting traders to trim bets on a near-term Fed rate rise.

Markets are pricing in about a 45% chance for a hike at the September meeting, according to the CME FedWatch tool. US Treasuries were closed on Friday for the Independence Day holiday.

The dollar index, which measures the US currency against a basket including the yen and the euro, was roughly 0.2% lower at 100.83 after a 0.5% dip on Thursday. It was down 0.5% for the week, the biggest weekly drop since early April.

Although the yen has recovered from 40-year lows, investors remained on alert for possible intervention during a holiday-thinned session with US markets closed for Independence Day.

Japan issued a warning to currency markets on Friday as Finance Minister Satsuki Katayama said Tokyo was in regular contact with Washington on foreign exchange issues and remained ready to support the yen.

For this week, both Mr. Ricafort and the trader see the peso moving between P61.20 and P61.60 per dollar, with the market expected to monitor the June Philippine consumer price index (CPI) report to be released on Tuesday (July 7).

“Global crude oil prices lingered at the lowest in more than four months or since Feb. 27, 2026 and erased almost all of their increases since the war in Iran started… Thus, the worst of global crude oil prices and resulting inflationary pressures could have been seen already and could still somewhat help reduce the country’s import bill, narrow the trade deficit, and also help ease inflationary pressures,” Mr. Ricafort said.

Headline inflation may have slowed to a three-month low in June as easing oil and rice prices offset higher electricity rates, analysts said. A BusinessWorld poll of 18 analysts yielded a median estimate of 6.6% for June inflation, slower than the 6.8% in May but faster than the 1.4% a year ago.

This is within the Bangko Sentral ng Pilipinas’ 6%-7% projection for the month.

If the median estimate holds true, this would be the second month in a row that inflation eased and would be the slowest headline print in three months or since the 4.1% in March. 

However, June would be the fourth consecutive month that the CPI breached the central bank’s 2%-4% tolerance band.

REBOUND AHEAD
Meanwhile, the peso could see a gradual rebound until next year, supported by easing global oil prices and the BSP’s tightening stance, MUFG Bank said.

Based on its latest Asia foreign exchange outlook, the local unit may gradually recover to average P60 against the dollar by the end of the first half of 2027.

It expects the currency to settle at P61.50 to the dollar in the third quarter, before strengthening further to P61 in the fourth quarter and P60.50 in the first quarter of next year.

“Lower oil prices and with that a narrower trade deficit, our expectation for further BSP rate hikes, coupled with some gradual improvement in government spending should provide support to the Philippine peso,” MUFG Head of Global Markets Research for Asia Lin Li, senior currency analysts Michael Wan and Lloyd Chan, and associate Khang Sek Lee said in a July 3 report.

“On the flipside, key risks to watch for include a more hawkish Fed and the impact of a possible Super El Niño on domestic food prices, but ultimately our global team’s expectations point towards the dollar weakening with the Fed unlikely to validate current market pricing of US rate increases,” they added.

Uncertainties surrounding the US-Israel war on Iran ignited safe-haven demand for the greenback, pulling the peso down to P60- to P61-per-dollar level from the P58 mark prewar.

The local unit remained above the P61 mark for two straight months, but strengthened by 23 centavos to close at P61.360 on June 30 from its P61.590 finish on May 29.

It traded at an average of P61.2513 versus the greenback in June, bringing its first-half average to P59.9722 against the dollar.

MUFG sees the BSP delivering two more 25-basis-point (bp) rate increases to bring the benchmark rate to 5.25% by yearend. 

“Just as importantly for FX (foreign exchange) and rates markets, we are forecasting BSP to reverse its rate hikes in 2027 starting (the second quarter of) 2027 once we get greater confidence on a moderation in year-on-year headline inflation, with the policy rate likely to end 2027 at 4.5%. These forecasts assume oil prices remain contained, and the US-Iran deal holds through 2027,” it added.

Philippine inflation will likely average 5.4% this year before slowing to 3.9% next year, based on MUFG’s forecasts. “Inflation has broadened beyond food and energy, but lower oil prices should cushion transport and pump-price pressures,” it said. “The risk is that second-round effects become more persistent.”

As of May, the headline print was above the BSP’s 2%-4% tolerance range at 4.5%.

The central bank has hiked benchmark borrowing costs by a total of 50 bps since April as it sought to temper rising inflationary pressures from the Middle East war-driven energy shock. It has left the door open for further hikes to curb spillover price effects, as it expects inflation to breach its 3% target until 2028. — Aaron Michael C. Sy and Katherine K. Chan