Peso surges on bets of big Fed rate cut

The peso surged against the dollar on Thursday amid renewed market expectations of a big rate cut by the US Federal Reserve following weak US data and on slower-than-expected Philippine inflation last month.

The local unit closed at PHP 56.21 per dollar on Thursday, strengthening by 37 centavos from its PHP 56.58 finish on Wednesday, Bankers Association of the Philippines data showed.

The peso opened Thursday’s session stronger at PHP 56.50 against the dollar. Its intraday best was its closing level, while its weakest showing was at PHP 56.51 versus the greenback.

Dollars exchanged went down to USD 1.57 billion on Thursday from USD 1.57 billion on Wednesday.

The peso appreciated against a broadly weaker dollar on bets of an aggressive Fed cut, a trader said by phone.

“Asian currencies strengthened against the dollar following the US job openings data that fell below expectations, fueling speculation of a dovish Federal Reserve stance,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

Most emerging market currencies edged up against a wavering dollar on Thursday as bets on bigger interest rate cuts by the Federal Reserve grew, with focus on more US data due later in the day, Reuters reported.

MSCI’s index for emerging market currencies gained 0.2%.

The dollar struggled for direction after data on Wednesday showed US job openings dropped to a 3-1/2-year low in July, suggesting the labor market was losing steam, while a Fed survey showed US economic activity expanded more slowly from the middle of July through late August.

The peso was also supported by easing Philippine inflation, the trader added.

The slower-than-expected inflation print will give the Bangko Sentral ng Pilipinas (BSP) more leeway to continue its rate cut cycle, Mr. Roces said.

Headline inflation eased to a seven-month low of 3.3% in August from 4.4% in July and 5.3% in the same month a year ago, the Philippine Statistics Authority reported on Thursday.

This was within the BSP’s 3.2-4% forecast for the month and was well below the 3.7% median estimate in a BusinessWorld poll of 15 analysts conducted last week.

The Philippine central bank on Aug. 15 reduced its policy rate by 25 basis points (bps) to 6.25%, marking its first easing move in nearly than four years.

BSP Governor Eli M. Remolona, Jr. has said they could cut rates by another 25 bps within the year.

The Monetary Board’s last two policy-setting meetings this year are on Oct. 17 and Dec. 19.

For Friday, the trader sees the peso moving between PHP 56 and PHP 56.50 versus the dollar. — AMCS with Reuters