Peso climbs vs dollar on dovish Fed bets after collapse of two US banks

THE PESO strengthened on Monday as concerns over the US banking sector weighed on the greenback.

The local currency closed at PHP 54.93 versus the dollar on Monday, rising by 24 centavos from Friday’s finish of PHP 55.17, data from the Bankers Association of the Philippines’ website showed.

The peso opened Monday’s session stronger at PHP 55.05 per dollar. Its intraday best was at PHP 54.79, while its worst showing was at PHP 55.08 against the greenback.

Dollars traded climbed to USD 1.075 billion on Monday from the USD 779.8 million recorded on Friday.

The peso strengthened as the dollar index fell on Monday after the collapse of Silicon Valley Bank (SVB) and New York’s Signature Bank (NYSB), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso appreciated due to market worries after two major US banks, Silicon Valley Bank and Signature Bank collapsed over the weekend,” a trader likewise said in an e-mail on Monday.

The dollar fell on Monday on heightened expectations the Federal Reserve will be less aggressive with monetary policy as authorities stepped in to limit the fallout from the sudden collapse of Silicon Valley Bank, Reuters reported.

The US government announced several measures early in the Asian trading day, saying all SVB customers will have access to their deposits starting on Monday.

The authorities also said depositors of New York’s Signature Bank, which was closed on Sunday by the New York state financial regulator, would be made whole at no loss to the taxpayer.

The Fed announced it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.

The market turmoil from the SVB collapse led investors to speculate the Fed will no longer raise interest rates by a super-sized 50 basis points this month. Focus will now be on Tuesday’s inflation data to gauge how hawkish the Fed is likely to be.

The dollar index, which measures the US currency against six others, slipped as much as 0.55% to near one-month lows of 103.67 after Goldman Sachs said it no longer expects the Fed to deliver a rate hike at its March 22 meeting. The index was last at 103.92.

The market is now pricing a nearly 33% chance of the Fed sticking to its current rate and an 67% chance of a 25-basis-point hike. In contrast, the market was pricing a 70% chance of a 50 basis point hike before the SVB collapse.

For Tuesday, the trader said the peso could strengthen further against the greenback on expectations of softer US consumer inflation data to be released on March 14.

The trader expects the peso to move between PHP 54.08 and PHP 55.05 per dollar on Tuesday, while Mr. Ricafort gave a forecast range of PHP 54.80 to PHP 55. — A.M.C. Sy with Reuters