Peso rebounds vs dollar as US data support bets of less hawkish FOMC

THE PESO rebounded against the dollar on Wednesday as slower US employment and housing data supported expectations of a less hawkish policy stance by the Federal Reserve.

The local currency closed at PHP 54.475 versus the greenback on Wednesday, appreciating by 16.5 centavos from Tuesday’s PHP 54.64 finish, data from the Bankers Association of the Philippines’ website showed.

The peso opened Wednesday’s trading session slightly weaker at PHP 54.655 per dollar. Its worst showing was at PHP 54.67, while its intraday best was its close of PHP 54.475 against the greenback.

Dollars traded went down to USD 958.9 million on Wednesday from USD 984.31 million on Tuesday.

The peso followed an easing in US wage inflation and home prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso appreciated after the slower-than-expected US employment costs bolstered expectations of a softer 25-basis-point (bp) Fed rate hike,” a trader likewise said in an e-mail.

The US Labor department said the employment cost index rose 1% in fourth quarter of 2022, the smallest advance in a year, also following a 1.2% gain in the July-September period, Reuters reported.

Wages and salaries also rose 1%, up 5.1% year on year. It was the smallest gain since the fourth quarter of 2021, after rising 1.3% in the third quarter.

Meanwhile, house prices measured by the Federal Housing Finance Agency rose 8.2% in the 12 months through November after climbing 9.8% in October.

The Federal Open Market Committee (FOMC) was expected to announce a 25-bp hike at the end of its Jan. 31 to Feb. 1 policy meeting overnight.

Aside from the rate decision, investors are also waiting for policy hints from Fed Chair Jerome H. Powell’s news briefing after the FOMC meeting.

The peso was also supported the stock market’s surge on Wednesday that almost reversed the declines posted in the first two days of the week, Mr. Ricafort added.

The benchmark Philippine Stock Exchange index surged by 242.51 points or 3.57% to close at 7,035.76 on Wednesday.

For Thursday, the trader said peso-dollar trading will take its cue from Mr. Powell’s comments overnight.

The trader sees the peso moving from P54.35 to P54.55 on Thursday, while Mr. Ricafort expects it to trade at PHP 54.40 to PHP 54.60 per dollar. — A.M.C. Sy with Reuters