Peso rebounds as dollar weakens on Fed bets

The peso rebounded on Thursday as the dollar was weaker amid hawkish statements from US Federal Reserve officials.

The local unit closed at PHP 56.02 per dollar on Thursday, strengthening by eight centavos from its PHP 56.10 finish on Wednesday, Bankers Association of the Philippines data showed.

The peso opened Thursday’s session at PHP 56.06 against the dollar, which was also its weakest showing. Its intraday best was at PHP 55.94 versus the greenback.

Dollars exchanged went down to USD 958.68 million on Thursday from USD 1.34 billion on Wednesday.

The peso rose as the dollar was weaker due to hawkish statements from Fed officials after faster-than-expected US consumer inflation in January, a trader said in a Viber message.

The peso-dollar pair consolidated as the dollar softened overnight, Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

The US dollar traded in a tight range on Thursday, as market players tried to gauge when the Federal Reserve will likely begin cutting interest rates as Fed officials weighed in on Tuesday’s inflation data, Reuters reported.

The US inflation data pushed back bets on a first Fed rate cut to the middle of the year, after showing the consumer price index (CPI) gained 3.1% in January on a year-on-year basis, compared with an expected 2.9% rise.

The market is currently pricing in no rate cut in March compared to 77% bets a month ago that rate cuts would start then, according to CME’s FedWatch tool. Markets see about a 60% chance the Fed will also hold rates at its May meeting.

Chicago Fed President Austan Goolsbee said on Wednesday the Fed’s path will still be on track even if price increases run a bit hotter-than-expected in coming months, and the central bank should be wary of waiting too long before it cuts interest rates.

Fed Vice Chair for Supervision Michael Barr said the Fed remained confident, but the January CPI numbers show the United States’ path back to 2% inflation “may be a bumpy one.”

The dollar index, which measures the greenback against six peer currencies, consolidated below a fresh three-month high of 104.97 touched on Wednesday, ahead of US retail sales in January due later on Thursday. It last sat mostly flat at 104.66.

For Friday, the first trader sees the peso moving between PHP 55.80 and PHP 56.30 per dollar, while Mr. Roces sees the peso trading from PHP 55.90 to PHP 56.30. A second trader expects the peso to range from PHP 55.85 to PHP 56.10 versus the greenback. — AMCS with Reuters