Peso gains as weak US data boost Fed cut bets

The peso climbed against the dollar on Wednesday as weak US data fueled bets of a US Federal Reserve cut next month.

The local unit rose by seven centavos to close at PHP 58.84 per dollar from its PHP 58.91 finish on Tuesday, Bankers Association of the Philippines data showed.

The peso opened Wednesday’s session stronger at PHP 58.83 against the greenback. It rose to as high as PHP 58.75, while its worst showing was at PHP 58.875 versus the dollar.

Dollars traded fell to USD 944 million from USD 1.169 billion on Tuesday.

“The dollar-peso closed higher as the market responded to US retail sales released overnight, coupled with comments from various Fed officials favoring a rate cut in December,” a trader said in a phone interview.

The peso also followed the yen’s sideways movement on Wednesday as signals from the Bank of Japan of a possible rate hike next month offset the pressure from possible intervention in the foreign exchange market by the Japanese government, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Thursday, the trader sees the peso trading at PHP 58.65 to PHP 58.95 per dollar, while Mr. Ricafort expects it to move between PHP 58.75 and PHP 58.95.

In the broader market, the dollar eased on Wednesday after benign US economic data reinforced expectations of a December rate cut, and as investors wagered that the leading candidate for the next Federal Reserve chair may guide policy in a more dovish direction, Reuters reported.

Data on Tuesday showed US retail sales rose less than expected in September while producer prices were in line with expectations.

US consumer confidence also sagged in November as households worried about jobs and their financial situation.

All of that left traders adding to bets of a Fed cut next month, with markets now pricing in an 85% chance of a 25-basis-point move, according to the CME FedWatch tool.

The yen was supported on Wednesday by expectations the Bank of Japan (BoJ) could deliver a rate hike as soon as December.

The BoJ is preparing markets for a possible interest rate hike as soon as next month, sources told Reuters, reviving previous hawkish language as worries about sharp yen declines return and political pressure for the bank to keep rates low fades.

The yen initially rose on the back of the reports, before paring some of those gains over the course of the trading session. It was last marginally lower at JPY 156.07 per dollar, having earlier hit an intraday high of JPY 155.66.

The Japanese currency has come under pressure from mounting worries about the country’s worsening fiscal position and a central bank that has been cautious over further rate hikes, with traders on alert to the risk of an intervention from Tokyo to stem the yen’s decline.

Some analysts have said the US Thanksgiving holiday on Thursday could open a possible window for authorities to step in. — A.M.C. Sy with Reuters