Peso dips on hawkish Fed minutes

The Philippine peso weakened against the dollar on Thursday after minutes from the US Federal Reserve’s last policy meeting dampened expectations of an interest rate cut next month.

It closed at PHP 59.065 a dollar, down 13 centavos from Wednesday’s PHP 58.935, based on Bankers Association of the Philippines data posted on its website. It opened at PHP 59, its intraday best, and fell to a low of PHP 59.11. Dollar turnover slipped to USD 1.08 billion from USD 1.39 billion on Wednesday.

“The dollar-peso closed higher, trading sideways but tracking dollar strength following the release of hawkish Fed minutes,” a trader said by phone. “Players trimmed expectations of a December rate cut.”

Another market participant noted that the Fed minutes showed officials were divided over the October policy meeting and raised doubts about the likelihood of a rate cut in December.

The minutes also highlighted concerns over persistent inflation and the need to maintain flexibility in the US central bank’s policy stance, analysts said.

The dollar rose as high as ¥157.78 towards the end of the Asia session, its strongest since January.

The yen’s latest decline began after Finance Minister Satsuki Katayama said there had been no specific discussion about foreign exchange at a meeting with Bank of Japan Governor Kazuo Ueda.

The yen managed to find some stability as European trading got under way, with the dollar up 0.1% at JPY 157.36. But Japan’s currency has still depreciated by about 6% since Prime Minister Sanae Takaichi was elected leader of the ruling party last month.

That move has come in spite of rising Japanese bond yields, as markets are uneasy about the scale of borrowing needed to fund Ms. Takaichi’s stimulus plans.

“You must either believe that there’s a ‘Sell Japan’ narrative going on, or you take the view that these relationships are no longer stable,” said Vishnu Varathan, Mizuho’s head of research in Asia, referring to how the yen has fallen even while the US-Japan interest rate gap has narrowed.

Having sunk past JPY 157 per dollar to near where it began the year, traders now figure Japanese authorities may intervene somewhere around the 160 mark, or if there are any more sudden moves. Chief Cabinet Secretary Minoru Kihara said moves were sharp, one-sided and concerning on Thursday.

The second trader said the peso could appreciate on Friday due to a potentially weak US labor report overnight.

The first trader sees the peso moving from PHP 58.90 to PHP 59.20 a dollar, while the second trader expects it to range from PHP 58.90 to PHP 59.15.

The Fed cut borrowing costs twice this year as part of an easing cycle that started in September 2024, bringing the benchmark rate to 3.75%-4%. Investors had bet on a possible December cut, but the new minutes have prompted a reassessment. — Aaron Michael C. Sy