Peso returns to PHP 53-a-dollar level on dovish Fed statement

THE PESO surged to a seven-month high against the dollar on Thursday, returning to the PHP 53 level, as a smaller rate hike and dovish statements from the US Federal Reserve caused the greenback to tumble.

The local currency closed at PHP 53.845 versus the greenback on Thursday, appreciating by 63 centavos from Wednesday’s PHP 54.475 finish, data from the Bankers Association of the Philippines’ website showed.

This was the peso’s best close and was the first time it closed at the P53 level since its PHP 53.75 finish against the dollar on June 17, 2022.

The peso opened Thursday’s trading session stronger from Wednesday’s close at PHP 54.20 per dollar, which was already its weakest showing for the day. Meanwhile, its intraday best was at P53.835 versus the greenback.

Dollars traded jumped to $1.62 billion on Thursday from $958.9 million on Wednesday.

The peso strengthened after the Fed hiked borrowing costs by 25 basis points (bps) at its Jan. 31 to Feb. 1 meeting, as expected by the market, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso led Asian currencies against the dollar following the market’s dovish interpretation of Fed Chair Jerome H. Powell’s press conference,” a trader said in a Viber message.

The latest increase brought the fed funds rate to a 4.5% to 4.75% range, the highest since 2007. The US central bank has now hiked rates by 450 bps since March 2022.

Investors took a dovish cue from remarks by Mr. Powell, who referred repeatedly during a news conference to the “disinflationary” process that now appeared to be underway, Reuters reported.

“We can now say for the first time that the disinflationary process has started,” Mr. Powell told reporters after the end of the Fed’s latest two-day policy meeting, with goods prices slowing, pandemic-related shortages easing, and supply chains getting back to normal. “This is a good thing.”

With inflation still high and demand in the economy stronger than many anticipated, Mr. Powell said it remains unclear just how much higher rates will need to go.

The Fed statement indicated that any future rate increases would be in quarter-percentage-point increments, dropping a reference to the “pace” of future increases and instead referring to the “extent” of rate changes.

The dollar dived following Mr. Powell’s remarks. Against a basket of currencies, the US dollar index fell to a fresh nine-month low of 100.80 on Wednesday.

It was last 0.07% down at 100.88, having ended more than 1% lower on Wednesday.

Mr. Ricafort added that the Bureau of the Treasury’s announcement of a retail Treasury bond (RTB) offering also supported the local currency against the dollar.

No official details were available about the RTB issuance besides teaser images on the Treasury’s Facebook page that hinted the offering could begin on Feb. 7.

The trader said peso-dollar trading on Friday could take its cue from US data to be released overnight, with the market also expected to continue digesting the Fed chief’s statement.

The trader sees the peso moving from PHP 53.50 to PHP 54.25, while Mr. Ricafort expects it to trade at PHP 53.70 to PHP 54 per dollar. — A.M.C. Sy with Reuters