Peso seen to move sideways vs dollar

THE PESO may continue to move sideways this week as investors await the US Federal Reserve’s next move.

The local unit closed at PHP 54.54 per dollar on Friday, strengthening by nine centavos from its PHP 54.63 finish on Thursday, Bankers Association of the Philippines data showed.

Week on week, the peso strengthened by 35 centavos from its PHP 54.89 finish on Jan. 13.

The peso opened Friday’s session weaker at PHP 54.75 per dollar. It dropped to as low as PHP 54.83, while its intraday best was at PHP 54.44 against the greenback.

Dollars exchanged went down to USD 1.0458 billion on Friday from USD 1.2496 billion on Thursday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso rose on the back of a broadly weaker dollar as traders expect a 25-basis-point (bp) in the Fed’s next monetary policy meeting.

A trader likewise said in a Viber message that the peso is “moving along with regional currencies as emerging markets [are] benefiting from weaker dollar and investors looking for yield pickup.”

The greenback was mostly on the defensive last week, as a slew of data from consumer spending to business activity and inflation across major economies highlighted an increasingly fragile outlook for US growth, Reuters reported.

Against a basket of currencies, the dollar slipped 0.05% to 102.005. The dollar index has lost about 1.4% so far in January, having fallen nearly 8% in the final three months of 2022, when investors began factoring in a higher chance of the Fed slowing down the pace of interest rate rises.

With much top-tier data out of the way now, investors are waiting for the first Fed meeting of the year to see if it raises interest rates by 25 bps or 50 bps as it did in December after four straight 75 bps increases. The market is eagerly pricing in another step down in its tightening policy.

The US central bank last year raised borrowing costs by 425 bps, bringing the fed funds rate to 4.25-4.5%. The first Fed meeting for this year will be held from Jan. 31 to Feb. 1.

For this week, the peso “may continue to trade sideways as the market awaits more clarity on the Fed’s policy action,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

Mr. Asuncion added that the release later this week of the Philippine’s gross domestic product (GDP) for the fourth quarter of last year “could bolster market sentiment” if it comes out better than their expected 2% quarter-on-quarter estimate.

Economic growth likely slowed in the last quarter of 2022 as rising prices resulted in slower holiday spending, analysts said.

A BusinessWorld poll of 23 economists yielded a GDP growth median estimate of 6.8% for the fourth quarter and 7.5% for the full-year 2022.

The fourth-quarter estimate is slower than the preliminary figure of 7.6% in the third quarter. It is also slower than the 7.8% seen in October-December 2021.

Mr. Asuncion expects the peso to move from P54.50 to P55.50 per dollar for this week, while Mr. Ricafort gave a narrower forecast range of PHP 54.35 to PHP 54.85 and the trader sees the peso moving between PHP 54.25 and PHP 55.25. — A.M.C. Sy with Reuters