The Philippine peso and the local stock market found support from softer-than-expected US inflation data through much of last week, but both lost momentum as renewed Middle East tensions dampened investor sentiment heading into the new week.
The moves cap a month of broader gains for Philippine financial markets, following the World Bank’s reclassification of the country as an upper-middle-income economy in early July.
Peso gains, then loses steam
The peso strengthened against the US dollar over three consecutive sessions last week, tracking a broader pullback in the greenback after weaker US inflation data curbed expectations of further Federal Reserve tightening.
On July 15, the local currency gained 2.4 centavos to close at ₱61.686 from ₱61.71 the previous session, based on data from the Bankers Association of the Philippines. It opened stronger that day at ₱61.60 and touched an intraday best of ₱61.57, with trading volume climbing to $1.146 billion.
The peso extended its climb on July 16, adding another 6.6 centavos to close at ₱61.62, as a softer US producer price print further reduced rate-hike bets. By July 17, the currency edged up just 3.3 centavos more, to ₱61.587 — a much smaller gain that hinted at fading momentum.
Indeed, on a week-on-week basis, the peso actually weakened by 7.2 centavos from its ₱61.515 close on July 10, underscoring that the inflation-driven rally was already running up against a stronger headwind: a reignited conflict in the Middle East, including reports of expanded attacks on Gulf states and renewed concerns over shipping through the Strait of Hormuz that has kept the currency volatile through the month.
Heading into the new week, the peso is expected to remain under pressure as the renewed conflict continues to weigh on sentiment, with trading likely to remain range-bound in the absence of fresh catalysts.
PSEi’s rally cools alongside the peso
The Philippine Stock Exchange index climbed alongside the peso’s mid-July gains, reaching 6,366 points on July 16 — up 1.01 percent from the previous session and 4.11 percent higher over the trailing month, according to Trading Economics.
IMAGE CREDIT: Freepik
That advance built on a rally that began in late June, when the World Bank upgraded the Philippines from a lower-middle-income to an upper-middle-income economy after the country’s gross national income per capita reached US$4,850, surpassing the US$4,636 threshold, per report from the Philippine News Agency.
RCBC chief economist Michael Ricafort noted at the time that the upgrade could help draw more investment and credit into the country on better terms.
Since then, sentiment has grown more cautious as the same geopolitical risk pressuring the peso has crept back into equities, tempering the optimism from both the World Bank upgrade and the softer US inflation data.
Outlook for investors and businesses
The combination of a firmer peso and a rising PSEi through mid-July had pointed to improving investor confidence in Philippine assets, aided by an easing global rate environment and the country’s improved income classification.
A stronger peso also offered some relief to businesses reliant on imported goods and raw materials, through lower import costs.
But as of this week, both markets remain sensitive to external developments — most immediately the renewed Middle East conflict, alongside ongoing US Federal Reserve policy signals.
Investors and businesses will likely be watching for further developments in the Gulf region and upcoming US economic data in the days ahead, along with the Bangko Sentral ng Pilipinas‘ own rate decisions later this year.
