Peso inches up on dovish Fed
THE PESO inched higher against the dollar on Thursday after US Federal Reserve Chair Jerome H. Powell opened the door for an interest rate cut at their September meeting.
The local unit closed at P58.333 per dollar on Thursday, strengthening by 3.2 centavos from its P58.365 finish on Wednesday, Bankers Association of the Philippines data showed.
The peso opened Thursday’s session stronger at P58.32 against the dollar. Its intraday best was at P58.26, while its weakest showing was at P58.385 versus the greenback.
Dollars exchanged went down to $1.17 billion on Thursday from $1.295 billion on Wednesday.
The peso rose after the Fed kept interest rates steady at its policy meeting but signaled a potential rate cut by next month, a trader said by phone.
Increased market expectations of two rate cuts by the Fed this year also supported the peso, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Mr. Powell said on Wednesday interest rates could be cut as soon as September if the US economy follows its expected path, putting the central bank near the end of a more than two-year battle against inflation but square in the middle of the nation’s presidential election campaign, Reuters reported.
The Fed ended its latest two-day policy meeting with a decision to hold its benchmark interest rate steady in the 5.25%-5.5% range that was set a year ago, but its statement softened the description of inflation and said the risks to employment were now on a par with those of rising prices — neutral language that opens the door for rates to fall after more than two years of tightening credit.
Mr. Powell pushed the message even further forward in his post-meeting press conference, noting that price pressures were now easing broadly in the economy —what he called “quality” disinflation — and that if coming data evolve as anticipated, support for cutting rates will grow.
“If we were to see inflation moving down… more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting,” he said.
Investors saw Mr. Powell’s comments as clearly setting the stage for a reduction in borrowing costs at the Fed’s Sept. 17-18 meeting.
Interest rate futures, stocks and Treasury bonds all rallied hard on Mr. Powell’s remarks, so much so that the probability of a first cut in September being as large as half a percentage point jumped to about 13% from about 5% before he began speaking, according to CME Group’s FedWatch tool. Mr. Powell, however, said a 50-basis-point cut was not something under active consideration.
For Friday, the trader sees the peso moving between P58.10 and P58.50 per dollar, while Mr. Ricafort sees the peso ranging from P58.20 to P58.40. — AMCS with Reuters