Peso to trade sideways ahead of Fed meeting

The peso could trade sideways against the dollar this week as the market looks ahead to the US Federal Reserve’s meeting for policy signals.

The local unit closed at P57.71 per dollar on Friday, strengthening by seven centavos from its P57.78 finish on Thursday, Bankers Association of the Philippines data showed.

Week on week, however, the peso depreciated by six centavos from its P57.65 finish on April 19.

The peso appreciated against the dollar on Friday after Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said the central bank is closely monitoring the foreign exchange market and is prepared to manage volatility if needed, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Remolona last week said the peso’s decline was largely due to safe-haven demand for the dollar amid tensions in the Middle East.

The peso was also supported by the dollar weakening to two-week lows recently, Mr. Ricafort added.

For this week, the peso could trade sideways against the dollar as the market monitors the Fed’s April 30-May 1 meeting for possible signals on their future policy movements, he said

The US central bank last month kept its target rate at the 5.25%-5.5% range for a fifth straight meeting after raising interest rates by a cumulative 525 basis points (bps) from March 2022 to July 2023.

Fed policy makers sifting through the latest inflation data will find little to fuel a sense of urgency to cut interest rates, but also nothing to rule out the likelihood of rate reductions starting later this year, Reuters reported.

That was the view from financial markets and analysts following a government report on Friday that showed inflation rose last month largely in line with economist expectations, and with what Fed officials themselves had said they anticipated.

The year-over-year rise in personal consumption expenditures (PCE) price index, which the US central bank targets at 2%, accelerated to 2.7% in March from 2.5% in February. Core PCE, a measure of underlying inflation, came in at 2.8%, the same as February.

After the report, futures contracts that settle to the Fed’s policy rate interest-rate futures prices pointed to about a 60% chance of a rate cut at the US central bank’s mid-September meeting, slightly more than before the report. Traders continued to see about a 50-50 chance of a second rate cut by the end of the year.

Fed Chair Jerome H. Powell has said the central bank needs more confidence that inflation is heading towards their 2% goal before cutting rates.

Rate futures are pricing in about a 17% chance of no rate cuts at all this year, down about 20% before the report but elevated compared with a few weeks ago, when two or even three rate cuts this year was seen as most likely.

Mr. Ricafort expects the peso to move between P57.40 and P57.90 per dollar this week. — A.M.C. Sy with Reuters