Peso may move sideways as markets eye Fed meet
THE PESO may trade sideways against the dollar this week, with markets looking ahead to the US Federal Reserve’s policy meeting after key data released on Friday supported expectations of a rate cut this month.
The local unit closed at P56.111 per dollar on Friday, strengthening by 17.2 centavos from its P56.283 finish on Thursday, Bankers Association of the Philippines data showed.
This was the peso’s best finish in more than five months or since its P56.03-a-dollar close on March 21.
Week on week, the peso appreciated by 22.2 centavos from its P57.333-per-dollar close on Aug. 22.
The peso strengthened against the dollar on Friday after the Bangko Sentral ng Pilipinas (BSP) said inflation likely slowed in August, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Market players also repositioned before the release of the US personal consumption expenditures (PCE) price index data, Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.
Headline inflation likely settled within 3.2% to 4% last month, the BSP said on Friday.
Philippine headline inflation likely eased in August to return within the central bank’s 2-4% annual target, analysts said.
A BusinessWorld poll of 15 analysts yielded a median estimate of 3.7% for the August consumer price index (CPI), within the BSP’s forecast for the month.
If realized, this would be slower than the nine-month high of 4.4% in July, which also marked the first time since November 2023 that the CPI exceeded the BSP’s 2-4% goal. This would also be below the 5.3% print recorded in August 2023.
Meanwhile, the US PCE price index rose 0.2% in July after an unrevised 0.1% gain in June, the Commerce department said on Friday, matching economists’ forecasts, Reuters reported.
The data looks unlikely to divert the Fed, which tracks the PCE price measures as an inflation gauge for monetary policy, from lowering interest rates by at least 25 basis points (bps) this month.
In the 12 months through July, the PCE price index increased 2.5%, matching June’s gain and beating the 2.6% gain expected by economists polled by Reuters.
The Fed has maintained its policy rate in the current 5.25%-5.5% range for more than a year, having raised it by 525 bps in 2022 and 2023.
Money markets suggest traders mostly expect the Fed to cut rates by 25 bps at its Sept. 17-18 meeting, with odds of a 50-bp cut dimming further after Friday’s data, according to CME Group’s FedWatch Tool.
For this week, Mr. Roces said the peso could be range-bound against the dollar as the market awaits more leads before the Fed’s review.
For his part, Mr. Ricafort expects the peso to retest the P55 level this week and range from P55.80 to P56.30 per dollar. — AMCS with Reuters