Peso weakens before ECB policy review

The peso declined against the dollar on Wednesday as investors turned cautious ahead of the European Central Bank’s (ECB) policy decision and amid US Federal Reserve rate bets.

The local unit closed at PHP 56.30 per dollar on Wednesday, weakening by 14.5 centavos from its PHP 56.155 finish on Tuesday, based on Bankers Association of the Philippines data.

The peso opened Wednesday’s session weaker at PHP 56.30 against the dollar. Its intraday best was at PHP 56.20, while its weakest showing was at PHP 56.42 versus the greenback.

Dollars exchanged slipped to USD 1.38 billion on Wednesday from USD 1.397 billion on Tuesday.

“The peso weakened anew due to some caution ahead of the ECB policy decision,” a trader said in an e-mail.

The ECB decides policy on Thursday. No change in interest rates is expected, but investors will watch the tone of the statement and central bank chief Christine Lagarde’s press conference for clues on where rates are headed, Reuters reported.

The local currency declined amid fading views of an early rate cut by the Fed, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US rate futures market on Tuesday priced in a roughly 47% chance of a March rate cut, up from late on Monday, but down from as much 80% about two weeks ago, according to LSEG’s rate probability app.

For 2024, futures traders are betting on five quarter-point rate cuts. Two weeks ago they expected six.

In the last comments before Fed officials entered a blackout period ahead of their Jan. 31 policy decision, San Francisco Fed President Mary Daly said Friday she believes monetary policy is in a “good place” and it is premature to think rate cuts are imminent.

Earlier that week, Fed Governor Christopher Waller said policy makers would move “carefully and slowly,” which traders took as pushing back at pricing for a speedy fall in rates.

The US central bank hiked the fed funds rate by 525 basis points from March 2022 to July 2023 to the 5.25-5.5% range.

The peso was dragged down by a stronger dollar recently as US stock markets continued to gain, Mr. Ricafort added.

The dollar hovered near a six-week high against major peers on Wednesday as investors cemented expectations that the Federal Reserve would be in no rush to cut interest rates in the face of a resilient US economy.

The US dollar index — which tracks the currency against six rivals, including the euro and yen — was flat at 103.48 after rising to the highest since Dec. 13 at 103.82 in the previous session.

The Japanese yen gained some ground on Wednesday, following a volatile session a day earlier, after the Bank of Japan opted to keep stimulus settings unchanged, as expected, but central bank head Kazuo Ueda hinted at a possible end to negative rates in April or even March.

The dollar declined 0.17% to 148.085 yen, after swinging from as low as 146.99 and as high as 148.70 on Tuesday.

For Thursday, the trader said the peso could rebound on potentially softer US gross domestic product data. The trader sees the peso moving between PHP 56.10 and PHP 56.35 per dollar, while Mr. Ricafort expects it to range from PHP 56.20 to PHP 56.40. — A.M.C. Sy with Reuters