Peru's inflation unexpectedly slowed in May yet stayed above the 2% target, damping bets on more BCRP rate hikes and keeping pressure on the sol.
Inflation in Peru unexpectedly eased, reducing pressure on the BCRP to lift interest rates further. That narrows the rate advantage of holding Peruvian sol, likely pushing USD/PEN higher as carry trade appeal diminishes.
Likely, as lower inflation reduces the probability of further BCRP rate hikes, diminishing the sol's rate advantage. Traders may buy the pair on reduced carry appeal.
USD/PEN has support around 3.70, with resistance near 3.78. A break above resistance could open the way to 3.85 if the BCRP turns less hawkish.
Peru's consumer prices rose at a slower pace than anticipated in May, offering some relief but remaining firmly above the central bank's 1-3% target range. The surprise deceleration may temper expectations for further monetary tightening from the BCRP, though ongoing above-target inflation keeps rate cuts off the table. The Peruvian sol faces mixed signals, with reduced rate hike odds likely weighing on the currency against a broadly strong US dollar.
Peru's consumer price index rose at a slower-than-expected pace in May, though the annual rate remains above the central bank's target, indicating stubborn price pressures.
The unexpected slowdown reduces the urgency for additional rate hikes from the Banco Central de Reserva del Perú (BCRP), though persistent above-target inflation likely keeps rates elevated for longer.
The Peruvian sol weakened slightly as traders pared back expectations for near-term tightening, while local bonds showed limited movement amid global risk-off sentiment.