Peso likely to trade sideways as market awaits Fed rate cut hints

The peso is seen trading sideways in the coming days as the market looks ahead to the US Federal Reserve’s policy meeting this week for signals about their next move.

The local unit closed at PHP 58.52 per dollar on Friday, strengthening by 9.1 centavos from its PHP 58.611 finish on Thursday, Bankers Association of the Philippines data showed.

Week on week, however, the peso inched down by a centavo from its PHP 58.51 finish on May 31.

The peso gained against the dollar on Friday amid bolstered expectations of a rate cut by the Fed within this year after a softer US jobless claims report, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US economy created far more jobs than expected in May and annual wage growth reaccelerated, underscoring the resilience of the labor market and reducing the likelihood the Federal Reserve will be able to start rate cuts in September, Reuters reported.

Financial markets slashed the odds of a September rate cut, reducing the probability to about 53% from about 70% before the report, based on rate futures contracts, and now see roughly an even chance of two rate cuts by the end of 2024, versus about a 68% chance seen before the report.

Non-farm payrolls increased by 272,000 jobs last month, the Labor department’s Bureau of Labor Statistics said. Revisions showed 15,000 fewer jobs created in March and April combined than previously reported. Economists polled by Reuters had forecast payrolls advancing by 185,000. Estimates ranged from 120,000 to 258,000. May’s employment gains were higher than the 232,000 monthly average for the past year.

The US central bank is closely monitoring labor market conditions and economic growth to ensure it doesn’t keep rates too high for too long and overcool the economy as it tries to return inflation back to its 2% target.

Lower global crude prices also supported the peso on Friday, Mr. Ricafort added.

For this week, Mr. Ricafort said the peso could trade sideways against the greenback as the market awaits the Fed’s review, where policy makers are expected to keep rates steady at the 5.25%-5.5% range for a seventh straight time but give signals on when it will kick off its easing cycle.

The Fed’s expected pause on June 11-12 is expected to be matched by the Bangko Sentral ng Pilipinas (BSP) at its own meeting on June 27, Mr. Ricafort added.

BSP Governor Eli M. Remolona, Jr. reiterated last week that the Monetary Board could start cutting rates before the Fed despite a weaker peso recently.

He earlier said the BSP could start its easing cycle with a 25-basis-point (bp) rate cut as early as the Monetary Board’s Aug. 15 meeting and slash rates once or twice in the second semester.

The BSP kept its benchmark rate steady at a 17-year high of 6.5% at its May meeting. It raised borrowing costs by 450 bps from May 2022 to October 2023 to tame inflation.

Mr. Ricafort expects the peso to move between PHP 58.20 to PHP 58.70 per dollar this week. — A.M.C. Sy with Reuters