Peso rises ahead of Fed minutes

The peso appreciated against the dollar on Wednesday on dovish expectations from the minutes of the US Federal Reserve’s December meeting to be released overnight.

The local unit closed at PHP 55.57 per dollar on Wednesday, strengthening by 10 centavos from the PHP 55.67 finish on Tuesday, based on Bankers Association of the Philippines data.

The peso opened Wednesday’s session weaker at PHP 55.70 against the dollar. Its intraday best was its close of PHP 55.57, while its worst showing was at PHP 55.815 versus the greenback.

Dollars exchanged rose to USD 1.88 billion on Wednesday from USD 1.26 billion on Tuesday.

“The peso appreciated amid dovish expectations prior to the release of Fed minutes overnight,” a trader said in an e-mail.

Fed officials in December predicted 75 basis points (bps) of rate cuts in 2024, driving money market bets for around double that amount of cuts that prompted a cross-market year-end rally, Reuters reported.

Futures markets still see a 70% chance of the Fed starting to lower US borrowing costs from their current 22-year high from March.

The US central bank last month kept the fed funds rate unchanged at 5.25-5.5% for the third straight time after it hiked borrowing costs by a cumulative 525 basis points from March 2022 to July 2023.

The Federal Open Market Committee will hold its first policy meeting for the year on Jan. 25-26.

Dovish Fed bets caused the dollar to drop slightly on Wednesday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar eased slightly on Wednesday though it stayed near a two-week high, underpinned by a confluence of factors including elevated US Treasury yields and a cautious turn in risk sentiment that weighed on Wall Street, Reuters reported.

Trading was thinned in Asia with Japan out on a holiday, with the greenback paring some of the morning gains over the course of the trading day in the region.

Still, against a basket of currencies, the greenback stood not too far from a two-week top of 102.25 hit on Tuesday, and was last at 102.13.

For Thursday, the trader said the peso could strengthen further as the market expects a slower Philippine inflation print for December. The data will be released on Friday.

The trader sees the peso moving between PHP 55.40 and PHP 55.65 per dollar on Thursday, while Mr. Ricafort expects it to range from PHP 55.50 to PHP 55.70. — AMCS with Reuters