Peso strengthens as Fed decides to hike rates

The peso appreciated on Thursday after the US Federal Reserve increased its key rate and Fed Chair Jerome H. Powell remained hawkish for the US central bank’s next meeting in September.

The local currency closed at PHP 54.56 versus the dollar on Thursday, strengthening by six centavos from Wednesday’s PHP 54.62 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Thursday’s session at PHP 54.55 per dollar. Its weakest showing of the day was at PHP 54.595, while its intraday best was at PHP 54.47 against the greenback.

Dollars traded went down to USD 914.1 million on Thursday from the USD 987.1 million seen on Wednesday.

The peso was supported by the weakening dollar after the Fed hiked its key rate by another 25 basis points (bps), and expectations of another one for the rest of year, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a Viber message.

The dollar index, which measures the currency against six major peers, was last down 0.4% at 100.66.

“The peso appreciated after Fed Chair Powell has not substantially changed its policy guidance on US policy rates while remaining open for a September rate hike,” a trader said in a Viber message.

The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday as Mr. Powell said the economy still needed to slow and the labor market to weaken for inflation to “credibly” return to the US central bank’s 2% target.

The hike, the Fed’s 11^th in its past 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.5% range, a level last seen just before the 2007 housing market crash and which has not been consistently exceeded for about 22 years.

Mr. Powell made no promises either way, with a September meeting eight weeks from now considered “live” for another rate increase, though a continued slowing of inflation and weaker economic data may also prompt policymakers to pause.

The US central bank has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will next meet on Sept.19-20 to review policy.

Mr. Ricafort said that the peso also rose after more short-term foreign portfolio investment funds entered than left the Philippines in June after four straight months of outflow.

Data from the Bangko Sentral ng Pilipinas showed transactions on foreign portfolio investments registered with the central bank through authorized agent banks posted a net inflow of USD 1.23 million in June, a turnaround from the USD 124.49-million net outflow in May.

It was also a reversal of the USD 342.19-million net outflow in the same month last year.

For Friday, the trader sees the peso moving between PHP 54.40 and PHP 54.65 per dollar, while Mr. Ricafort expects it to range from PHP 54.45 to PHP 54.65. — Aaron Michael C. Sy with Reuters