Peso may strengthen vs dollar as US data bolster Fed cut bets

Thepesocould strengthen against the dollar this week as US data released on Friday bolstered expectations for a US Federal Reserve cut this month.

On Friday, the local unit closed at PHP 57.13 per dollar, inching down by a centavo from its PHP 57.12 finish on Thursday, data from the Bankers Association of the Philippines showed.

Week on week, the peso weakened by 18 centavos from its PHP 56.95 close on Aug. 22.

“The market initially dropped amid a weaker dollar overnight due to increased dovish Fed bets. But caution ahead of the US personal consumption expenditures (PCE) data drove the pair up to close at PHP 57.13,” a trader said in a phone interview on Friday.

The dollar weakened against the euro and Swiss franc on Friday, on course for a 2% decline in August against a basket of currencies, as traders prepared for a US interest rate cut by the Federal Reserve next month, Reuters reported.

The dollar, which initially firmed after US inflation data came in as expected, later gave up gains, failing to break a three-day losing streak.

The US Commerce department reported on Friday that its PCE price index rose 0.2% last month after an unrevised 0.3% rise in June.

In the 12 months through July, the PCE price index advanced 2.6%, matching the rise in June.

Stripping out food and energy components, the PCE price index increased 0.3% after a similar rise in June. In the 12 months through July, core PCE inflation advanced 2.9%. That was the largest rise since February and followed a 2.8% gain in June. The Fed tracks the PCE price measures for its 2% inflation target.

The data keeps the Fed on track for a widely expected rate cut at its upcoming meeting on Sept. 16-17. Money markets are pricing in an 87% chance of an easing, up from 63% a month earlier, CME’s FedWatch tool showed.

The dollar index, which measures the greenback against a basket of currencies, was down 0.09% at 97.803 in afternoon trading.

US President Donald J. Trump’s campaign to exert more influence over monetary policy, including last week’s attempt to fire Fed Governor Lisa Cook, has weighed on the dollar.

A federal judge said on Friday she would set an expedited briefing schedule in Ms. Cook’s bid to temporarily block Mr. Trump from firing her while she pursues a lawsuit that says he has no valid reason to remove her.

Mr. Trump is trying to reshape the Fed after repeatedly criticizing the central bank and its chair, Jerome H. Powell, for not cutting interest rates.

The peso was also supported by signals from the Bangko Sentral ng Pilipinas (BSP) chief that they are close to ending their current rate-cut cycle, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

On Thursday, the BSP cut its target reverse repurchase rate by 25 basis points (bps) to 5% for a third straight meeting, as expected by all 20 economists in a BusinessWorld poll.

It has now slashed borrowing costs by a cumulative 150 bps since it kicked of its rate-cut cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. said the policy rate is now at the “sweet spot” in terms of inflation and output.

He added that they could consider further policy loosening if the economy weakens “considerably,” with one more cut still possible this year that could mark the end of its current easing cycle.

The trader said the peso will likely react to the US PCE data released on Friday to start this week’s trading, adding that the local unit could rise as the Fed’s key inflation gauge was within market expectations.

Both the trader and Mr. Ricafort see the peso moving between PHP 56.90 and PHP 56.40 per dollar this week. — A.M.C. Sy with Reuters