The peso on Friday continued to weaken against the US dollar that economists said might intensify prospects for a stronger greenback that may further stoke higher inflation and interest rates.

The peso closed at P57.65 per dollar on Friday from P57.19 per dollar on Thursday, data from the Bankers Association of the Philippines showed. The peso already hit its 17-month low on Tuesday at P57.

The currency weakened as armed conflicts increased demand for the dollar among investors projecting losses from inflationary risks.

“The peso movement reflected risk-off trades as markets reacted to Israel’s strike. Hopefully, there will be no retaliation. Otherwise, oil prices could rise and demand for the greenback will rise.” 

Armed conflicts increased dollar demand

Jonathan Ravelas, former BDO Unibank Inc.’s market strategist, said the peso weakened as the armed conflicts increased demand for the dollar among investors that are projecting losses from inflationary risks.

“The peso movement reflected risk-off trades as markets reacted to Israel’s strike.”

Hopefully, there will be no retaliation. Otherwise, oil prices could rise and demand for the greenback will rise,” he said.

Global oil prices on Friday inched up as the price of WTI crude increased by 0.50 percent and Brent crude by 0.28 percent.

US dollar debt instruments

Dan Roces, chief economist of Security Bank, said investors are also keen on placing funds in US-dollar denominated debt instruments after Federal Reserve Chairman Jerome Powell said he is leaning toward a “restrictive” policy rate for an extended period.

“More upward pressure on the pair today as the Federal Reserve spoke overnight on continued support for its patience narrative. Overall, with the current backdrop of heightened inflation and geopolitical tensions, the dollar is expected to continue to rally,” Roces said.

Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the Bangko Sentral ng Pilipinas (BSP) must still weigh trends in other goods to determine whether local overall inflation will rise drastically.

If this happens, the BSP will continue to impose a high policy rate for banks.

“The peso movement should not affect BSP’s policy decision for as long as overall inflation remains manageable,” he said.

More spending for massive infra 

HSBC economist Aris Dacanay said the dollar will likely remain strong as the Philippine government pays more for imported capital goods to support its massive infrastructure plan.

The Development Budget Coordination Committee expects the peso to range from P55 to P57 this year, and up to P58 next year until 2028.