Peso climbs further as Fed officials boost hopes of September rate cut

The peso extended its rise against the dollar on Thursday as comments from US Federal Reserve officials supported bets of a September rate cut in the world’s largest economy.

The local unit closed at PHP 58.25 per dollar on Thursday, strengthening by 4.5 centavos from its PHP 58.295 finish on Wednesday, Bankers Association of the Philippines data showed.

This was the peso’s best close in more than a month or since its PHP 57.97-a-dollar finish on May 28.

The peso opened Thursday’s session stronger at PHP 58.25 against the dollar. It climbed to as high as PHP 58.17 during the session, while its worst showing was at PHP 58.333 versus the greenback.

Dollars exchanged went down to USD 1.17 billion on Thursday from USD 1.24 billion on Wednesday.

The peso was supported by stronger bets of a dovish Fed, a trader said in a phone interview.

“However, trading was cautious ahead of the ECB’s (European Central Bank) decision overnight,” the trader added.

The local unit climbed as Fed officials signaled a rate cut in the coming months, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

Top Federal Reserve officials said on Wednesday the US central bank is “closer” to cutting interest rates given inflation’s improved trajectory and a labor market in better balance, remarks that set the stage for a first reduction in borrowing costs in September, Reuters reported.

Fed Governor Christopher Waller and New York Fed President John Williams both noted the shortening horizon toward looser monetary policy, with Mr. Waller highlighting it in a speech at the Kansas City Fed and Mr. Williams voicing it in a Wall Street Journal interview.

Separately, Richmond Fed President Thomas Barkin said he is “very encouraged” that declines in inflation had begun to broaden. “I’d like to see that continue,” he told a business group in Maryland.

The remarks are the latest in a rush this week of commentary from top US central bank officials — including Fed Chair Jerome H. Powell — to note their increased confidence that the disinflationary trend that began last year is continuing, despite a short-lived bump in inflation earlier this year.

Price pressures appear to be easing across the board, the Fed officials said, with goods prices falling, housing cost increases slowing, and more moderate wage growth feeding into a long-awaited easing of price increases in the services sector.

Mr. Williams and Mr. Waller appeared to rule out a rate cut at the Fed’s July 30-31 policy meeting, a view reflected in financial markets that are now pricing the probability of a move at that meeting at less than 5%.

All three policymakers who spoke on Wednesday were “pointing to September” for a start to the policy easing, Karim Basta, chief economist at III Capital Management, wrote.

More Fed policymakers have suggested they are getting increasingly comfortable that the pace of price increases is more firmly on track back down to 2%, after higher-than-expected readings earlier in the year.

Mr. Powell on Monday also said that inflation readings over the second quarter of this year “add somewhat to confidence” on its downward path, suggesting a start of an easing cycle may not be far off.

For Friday, Mr. Ricafort sees the peso ranging from PHP 58.15 to PHP 58.35 per dollar. Meanwhile, the trader said the local unit may inch closer to the PHP 57 level ahead of the release of the latest US labor data. — AMCS with Reuters