Peso may strengthen further as Fed turns dovish

The peso may appreciate against the dollar this week, supported by the seasonal increase in remittances during the holiday season and dovish signals from the US Federal Reserve.

The local unit closed at PHP 56.10 per dollar on Friday, strengthening by 63 centavos from its PHP 56.73 finish on Tuesday, based on Bankers Association of the Philippines data.

This was the peso’s best close in almost three months or since its PHP 56.02-per-dollar finish on Aug. 7.

Week on week, it gained 85.5 centavos from its PHP 56.955 close on Oct. 27.

The peso opened Friday’s session at PHP 56.60 against the dollar, which was also its weakest showing. Its intraday best was at PHP 55.93 versus the greenback.

Dollars exchanged rose to USD 1.84 billion on Friday from USD 860.9 million on Tuesday.

The peso rose against the dollar on Friday amid the seasonal increase in remittances due to last week’s holidays and after the US central bank signaled its tightening cycle could be nearing its end, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Federal Reserve held interest rates steady on Wednesday as policy makers struggled to determine whether financial conditions may be tight enough already to control inflation, or whether an economy that continues to outperform expectations may need still more restraint, Reuters reported.

Fed Chair Jerome Powell said the situation remained something of a riddle, with US central bank officials willing to raise rates again if progress on inflation stalls, wary that a rise in market-based interest rates may begin to weigh on the economy in a significant way, and trying not to disrupt, any more than necessary, an ongoing dynamic of steady job and wage growth.

At a press conference after the end of a two-day policy meeting Mr. Powell said the better course of action for now, given the uncertainties, was to maintain the Fed’s benchmark overnight interest rate in the current 5.25%-5.5% range, and see how job and price data evolve between now and the next policy meeting in December.

For this week, the peso could continue to find support from the expected seasonal increase in remittances and the Fed’s dovish rhetoric, Mr. Ricafort said.

“The peso is likely to get support from inflows and favorable sentiment due to the likely Fed pivot, which was the impetus for [Friday’s] close,” Security Bank Corp. Chief Economist Robert Dan J. Roces likewise said in a Viber message on Friday.

The market could also get leads from the release of October inflation data on Tuesday, Mr. Ricafort added.

A BusinessWorld poll of 13 analysts conducted last week yielded a median estimate of 5.7% for October inflation, within the Bangko Sentral ng Pilipinas’ (BSP) 5.1-5.9% forecast.

If realized, October inflation would be slower than 6.1% in September and 7.7% in the same month last year. It would also be the lowest rate in two months or since 5.3% in August.

However, October would mark the 19^th straight month that inflation was above the central bank’s 2-4% target.    

For this week, Mr. Ricafort sees the peso ranging from PHP 55.85 to PHP 56.35 per dollar, while Mr. Roces expects it to move between PHP 56 and PHP 56.40. — A.M.C. Sy with Reuters