Peso returns to 56 per USD level on Fed easing view

The peso jumped back to the PHP 56 level versus the dollar on Thursday as weaker-than-expected US jobs data fueled expectations of a rate cut by the US Federal Reserve this month.

The local unit closed at PHP 56.98 per dollar, strengthening by 32 centavos from its PHP 57.30 finish on Wednesday, Bankers Association of the Philippines data showed.

The peso opened Thursday’s trading session flat at PHP 57.30 against the dollar. Its intraday best was at its closing level of PHP 56.98, while its worst showing was at PHP 57.32 versus the greenback.

Dollars traded increased to $1.46 billion on Thursday from USD 1.37 billion on Wednesday.

The peso rose on “reinforced dovish Fed bets after the dismal jobs release overnight,” the first trader said in a phone interview.

“The peso appreciated after the weak US job openings data continue to fuel views of a September Fed rate cut,” the second trader said in an e-mail.

The US dollar steadied on Thursday in a volatile week as investors contend with a fragile bond market and data showing a weakening labor market, which has reinforced expectations the Federal Reserve will cut rates this month, Reuters reported.

With the Fed focused on employment, Friday’s crucial jobs report will help set expectations for the central bank’s next few policy meetings. Data on Wednesday showed job openings fell to a 10-month low in July, although layoffs remained relatively low. Separate surveys on private sector employment and monthly layoffs were due later on Thursday.

Traders are pricing in a near-100% chance of the Fed cutting interest rates later this month, up from 89% a week ago, CME FedWatch showed. They are also pricing in 139 basis points of easing by the end of next year.

The dollar edged up in relatively steady trade, reflecting investor wariness of making any big moves ahead of Friday’s payrolls report.

The dollar index, which tracks the US currency against six others, was up slightly at 98.23.

Several Federal Reserve officials said labor market worries continue to underpin their view that rate cuts still lie ahead for the central bank, boosting expectations of an imminent rate cut.

For Friday, the second trader said the peso could depreciate anew against the dollar due an expected uptick in Philippine inflation in August.

A BusinessWorld poll of 16 analysts yielded a median estimate of 1.3% for the August consumer price index, faster than the 0.9% rise in July but slower than the 3.3% clip in August 2024.

The first trader sees the peso moving between PHP 56.80 and PHP 57.20 per dollar on Friday, while the second trader expects it to range from PHP 56.85 to PHP 57.10. — A.M.C. Sy with Reuters