Peso sinks to 3-month low on hawkish Fed comments

THE PESO weakened to an over three-month low against the dollar on Monday following hawkish comments from a US Federal Reserve official.

The local currency closed at PHP 55.85 versus the dollar on Monday, declining by 64 centavos from Friday’s PHP 55.21 finish, data from the Bankers Association of the Philippines’ website showed.

This was the peso’s worst close in more than three months or since its P55.91 finish on Jan. 4.

The peso traded weaker than its Friday close the entire day, opening Monday’s session at PHP 55.35 per dollar, which was already its intraday best. Its worst showing was at PHP 55.87 versus the greenback.

Dollars traded inched down to USD 1.375 billion on Monday from the USD 1.39 billion recorded on Friday.

“The peso weakened significantly amid hawkish policy remarks from Fed official Waller about the need to tighten monetary policy toward its inflation target,” a trader said in an e-mail.

Despite a year of aggressive rate increases US central bankers “haven’t made much progress” in returning inflation to their 2% target and need to move interest rates higher still, Federal Reserve Governor Christopher J. Waller said on Friday, Reuters reported.

Important measures of underlying inflation have “basically moved sideways with no apparent downward movement,” Mr. Waller said in remarks that continue the Fed’s steady discounting of the immediate economic risks posed by recent bank failures.

Though Mr. Waller said it remains unclear whether bank stress would lead to an unexpected tightening of lending and credit and slow the economy more than needed, the apparent stability in financial markets showed the Fed was right to raise rates at its last meeting and keep the focus of monetary policy on fighting inflation.

“Monetary policy needs to be tightened further. How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions,” Mr. Waller said in remarks prepared for delivery at the Graybar National Training Conference in San Antonio, Texas.

The Fed’s next policy meeting is on May 2-3.

The US central bank has hiked borrowing costs by a total of 475 basis points since March 2022, with the fed funds rate now at a between 4.75% and 5%.

The peso also declined as the dollar hit a one-month high against the yen on Monday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar climbed to a one-month high against Japan’s yen on Monday as traders eyed up another interest rate hike from the Federal Reserve, while the Bank of Japan stuck to its easy money policies.

The dollar rose to 134.22 yen earlier in the session, the highest level since March 15. It was last up 0.12% at 133.9.

Meanwhile, the dollar index — which measures the currency against six major peers — was little changed at 101.64. It touched a one-year low of 100.78 on Friday before rebounding somewhat.

For Tuesday, the trader said the peso could rebound on a potentially upbeat Chinese gross domestic product report, “which might spur optimistic views on global growth prospects.”

The trader sees the peso moving between PHP 55.70 and PHP 55.95 against the dollar on Tuesday, while Mr. Ricafort sees it trading from PHP 55.75 to PHP 55.95. — By A.M.C. Sy with Reuters