Iran peace deal not enough to halt tightening in the Philippines and Indonesia
At a Glance
The desk sees that the Bangko Sentral ng Pilipinas (BSP) and Bank Indonesia are maintaining a tightening bias in response to persistent inflation risks, despite the recent peace deal in Iran and easing oil prices. Per the full note from ING, the BSP's 25bp rate hike reflects a cautious approach to anchoring inflation expectations while prioritizing second-round effects from ongoing oil price volatility. Similarly, Indonesia's policy adjustment seeks to stabilize the rupiah, though the effectiveness may be stymied by policy uncertainty. The current consensus is more bullish on EUR/USD, leaving it positioned for potential gains above the current trading level, absent any new negative catalysts from upcoming events.
Key Takeaways
- 01BSP and Bank Indonesia maintain tightening biases amid inflation risks linked to oil prices.
- 02Increases in rates expected from BSP to stabilize inflation, albeit cautiously.
- 03EUR/USD consensus remains bullish with a target of 1.1700 despite mixed signals.
- 04Market dynamics may hinge on evolving USD/JPY conditions and their implications for EUR/USD.
Full Analysis
What the desk is arguing
The desk frames this as a steady tightening bias from both the BSP and Bank Indonesia, underscoring the need to address inflationary pressures linked to oil prices and global supply conditions. The BSP's recent rate decision reflects a measured approach, anticipating further hikes aimed at curbing inflation without destabilizing financial markets.
Central bank indicators show a focused strategy; for instance, the BSP remains attentive to second-round effects on food and core inflation as significant drivers of consumer price levels. Inflation management appears paramount, with concerns that a retreat in oil prices might not be sustainable.
The alternative read would suggest that any significant drop in inflation might prompt a reconsideration of tightening measures sooner than expected, a scenario the desk currently doesn't prioritize.
Where it sits in our coverage
As for EUR/USD, our internal consensus target sits at 1.1700, with a range from 1.1200 to 1.2000 by December 2026. Specific firms such as hsbc (1.1700), deutschebank (1.1800), and bofa (1.1700) reflect a broadly bullish outlook on the pair for the near term.
This view aligns closely with industry expectations, while not positioned at either extreme of consensus, suggesting a balanced perspective on the outlook for EUR/USD.
How other firms see it
Firms like mufg and barclays are aligned with the broader bullish sentiment, sharing similar expectations of gradual upward momentum in EUR/USD, even as citi takes a contrarian stance with a more conservative view in the same period.
It's essential to observe how developments in the USD/JPY relationship may also affect sentiment in the EUR/USD trajectory, especially as the Bank of Japan continues to unwound its longstanding accommodative stance.
Market Implications
Watch for resilience in the EUR/USD above 1.1567 as it approaches key resistance levels. Any shifts in oil price dynamics or central bank rhetoric could alter the trading landscape significantly.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
From the original
Older quick take Quick take 10:29 Indonesia Philippines Iran peace deal not enough to halt tightening in the Philippines and Indonesia The BSP's cautious 25bp rate hike underscores a steady tightening bias, with policymakers focused on second-round inflation risks even as oil pri
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The desk interprets Bank Indonesia's recent 50 basis point rate hike as a tactical move aimed at stabilizing the Rupiah rather than a full reversal of its weakening trajectory. Per the full note by ING Economics, this decision prioritizes currency defense amid volatile regional dynamics and is in response to ongoing inflationary pressures forecasted at 3.02% Y/Y in October. As the trade balance turns slightly into a surplus, it's clear the central bank is responding proactively to support the currency's value against key external shocks.
Philippines inflation eases, but BSP rate hikes still Likely
The ING desk argues that despite a slight easing in Philippines headline inflation to 6.4% YoY in June, the acceleration in core inflation to 4.4% and sticky services/utility costs support the case for further BSP rate hikes. The data undershot market expectations, but the underlying persistence keeps the tightening bias intact. No consensus targets are available from our internal coverage for USD/PHP, and no high-impact events are scheduled in the next 30 days. The key takeaway is that rate hike expectations will keep the peso supported near-term.