Peso slides to fresh two-month low on Fed easing bets

The peso sank to a fresh two-month low against the dollar on Monday as markets continued to reprice their bets on the US Federal Reserve’s policy path following the fresh batch of economic data released last week.

The local unit closed at PHP 58.145 versus the greenback, dropping by 4.5 centavos from its PHP 58.10 finish on Friday, Bankers Association of the Philippines data showed.

This was the peso’s weakest close in two months or since its PHP 58.32-a-dollar finish on July 31.

The peso opened Monday’s session stronger at PHP 58 versus the dollar. Its intraday high was at PHP 57.945, while its worst showing was at PHP 58.165 against the greenback.

Dollars exchanged rose to USD 1.47 billion on Monday from $1.38 billion on Friday.

The peso opened stronger against the dollar “because of the fewer dovish Fed expectations after US PCE (personal consumption expenditures) data came in as expected,” a trader said by phone.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the PCE data and other reports released last week, as well as comments from Fed officials, have led markets to rethink their rate-cut expectations.

Market sentiment continued to be affected by the ongoing probe into alleged corruption in state flood-control and infrastructure projects at home involving several lawmakers and government officials, he added.

For Tuesday, the trader expects the peso to move between PHP 57.90 and PHP 58.40 per dollar, while Mr. Ricafort said it could range from PHP 58 to PHP 58.25.

US consumer spending, which accounts for more than two-thirds of economic activity, rose 0.6% in August, slightly higher than the 0.5% estimated by economists polled by Reuters.

The PCE price index, which is the Fed’s preferred inflation measure, rose 0.3% last month, in line with expectations, US Commerce department data showed.

The dollar dropped on Monday amid concerns over a potential government shutdown, with the yen outperforming the euro ahead of a batch of US economic releases that could offer further clues on the Federal Reserve’s policy path.

The greenback rose last week following economic data that prompted a pullback in expectations for Fed interest rate cuts.

Traders are currently pricing in 40 basis points (bps) of Fed easing by December and a total of 110 bps by the end of 2026, about 25 bps less than levels seen in mid-September.

The dollar index — a measure of its value relative to a basket of foreign currencies — was down 0.22% on Monday to 97.90, having risen 0.5% last week. — A.M.C. Sy with Reuters