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Peso strengthens further vs the dollar on dovish Fed comments

BW FILE PHOTO

THE PESO continued to strengthen against the dollar on Thursday following remarks from the US Federal Reserve chief that cemented market expectations of slower rate hikes moving forward. 

The local unit closed at P56.22 per dollar on Thursday, gaining 34 centavos from its P56.56 finish on Wednesday, based on Bankers Association of the Philippines data.

The peso opened Thursday’s session at P56.45 per dollar, which was also its weakest showing. Meanwhile, its intraday best was at P56.10 against the greenback.

Dollars exchanged went down to $898.7 million on Thursday from $1.03 billion on Tuesday.

The foreign exchange market was closed on Wednesday in observance of Bonifacio Day.

“The peso appreciated anew after Fed Chair Powell confirmed market views that the US central bank might need to reduce the pace of future policy rate hikes,” a trader said in an e-mail on Thursday. 

Fed Chairman Jerome H. Powell said on Wednesday that it is now the time for the US central bank to slow down the pace of its coming interest rate hikes, and to end the large 75-basis-point (bp) increases that it had delivered for four straight meetings since June.

“We wouldn’t…try to crash the economy and then clean up afterward,” Mr. Powell said, with policy makers hoping not to “overtighten…because we think that cutting rates is not something we want to do soon.”

“That’s why we’re slowing down and going to try to find our way to what that right level is” that lowers inflation over time,” he added.

The Fed has raised borrowing cuts by 375 bps since March to tame inflation. It is now widely expected to deliver a 50-bp rate increase on Dec. 13-14.

The peso also appreciated on Thursday amid mostly softer US economic data that could support smaller future Fed rate hikes, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Data published by Automatic Data Processing showed on Wednesday that private sector employment in the US rose by 127,000 last month. This reading came in weaker than market expectations of 200,000.

The peso strengthened “also on signals that local policy rates would partially or fully match any future Fed rate hike/s, as any future local policy rate hike/s may also be supported by still relatively stronger economic data recently,” Mr. Ricafort said.

The Bangko Sentral ng Pilipinas (BSP) may continue to raise interest rates in its coming meetings to tame inflation, but it may no longer need to mirror the US central bank if the strong dollar begins to wane in the coming months.

“What they’re saying is that US rates will rise but the rate of increase will decrease. So, in that particular case, then maybe we have room to either respond fully or partially. Depending on the data,” BSP Governor Felipe M. Medalla said.

For Friday, the local currency might weaken ahead of potentially robust US labor reports, the trader said.

The trader sees the peso moving between P56.10 and P56.35 on Friday, while Mr. Ricafort gave a slightly narrower forecast range of P56.10 to P56.30 per dollar. — Keisha B. Ta-asan

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