Peso to move mostly sideways vs dollar before Fed decision

The peso could mostly trade sideways against the dollar this week as the market awaits the US Federal Reserve’s policy meeting, where it is expected to cut rates for the first time since March 2020.

On Friday, the local unit closed at PHP 55.995 per dollar, strengthening by 20.5 centavos from its PHP 56.20 finish on Thursday, Bankers Association of the Philippines data showed.

However, week on week, the peso depreciated by nine centavos from its PHP 55.905 finish on Sept. 6.

The peso was supported by a generally weaker dollar on Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The dollar weakened as mixed US data fueled Fed rate cut bets,” Security Bank Corp. Chief Economist Robert Dan J. Roces added in a Viber message.

“The dollar-peso traded within ranges as slightly better US inflation data, the producer price index (PPI), was weighed down by higher-than-expected jobless claims overnight,” he said.

The PPI for final demand rose 0.2% in August, compared with estimates for 0.1% growth, Reuters reported. The core number, which strips out volatile food and energy prices, rose 0.3%, higher than the 0.2% forecast.

Separately, initial claims for state unemployment benefits stood at 230,000 for the week ended Sept. 7, in line with estimates.

The US dollar fell on Friday to its lowest level in nearly nine months against the Japanese yen after media reports once again fueled speculation the Federal Reserve could deliver a super-sized 50-basis-point (bp) interest rate cut at its policy meeting this week.

Analysts said reports by the Wall Street Journal and Financial Times late on Thursday saying a 50-bp rate reduction is still an option, and comments from a former Fed official arguing for an outsized cut, caused a shift in market expectations.

The US rate futures market has priced in a 51% probability of a 50-bp easing by the Fed at the conclusion of its two-day meeting on Wednesday. Futures traders have also factored in 117 bps of cuts for 2024, up from 107 bps in the previous session.

In late afternoon trading, the dollar was down 0.66% to 140.855 yen, after earlier dropping to 140.285, its lowest level since Dec. 28. On the week, it fell 1%.

The dollar trimmed losses after data showed US consumer sentiment improved in September amid easing inflation.

US economic data last week appeared to support the case for a typical 25-bp cut this week, with the measure of consumer price inflation that strips out volatile food and energy prices rising more than expected in August.

But former New York Fed President Bill Dudley on Friday added to the speculation about a 50-bp Fed rate cut, saying there was a strong case for such a move and that rates were currently 150-200 basis points above the so-called neutral rate for the US economy, where policy is neither restrictive nor accommodative.

For this week, Mr. Roces said the Federal Open Market Committee’s policy meeting will be a major catalyst for the peso’s movement.

Mr. Ricafort sees the peso moving between PHP 55.80 and PHP 56.30 per dollar this week. — AMCS with Reuters