Peso weakens after hawkish Fed cue

The peso weakened against the dollar on Wednesday after hawkish remarks from a US Federal Reserve official.

It closed at PHP 55.93 a dollar, 10 centavos weaker than its PHP 55.83 finish on Tuesday, according to Bankers Association of the Philippines data posted on its website.

The peso opened at PHP 55.97 against the dollar, appreciated to as much as PHP 55.835 and depreciated to as much as PHP 56.125.

Dollars exchanged went up to USD 1.74 billion from USD 1.62 billion a day earlier.

The peso was dragged down by signals from Fed Governor Christopher J. Waller, who said rate cuts have to be “methodical,” pushing back against market expectations of about six rate cuts this year, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

“The peso depreciated amid hawkish remarks from Fed official Waller who hinted at less aggressive rate cuts in 2024,” a trader also said in an e-mail.

The US is “within striking distance” of the Federal Reserve’s 2% inflation goal, but the central bank should not rush to cut its benchmark interest rate until it is clear lower inflation will be sustained, Mr. Waller said on Tuesday, according to Reuters.

Regardless of when rate cuts begin, Mr. Waller said the Fed should proceed “methodically and carefully” and not make the sort of large, fast reductions used when the Fed was trying to bail out the economy from a shock or a pending downturn.

Mr. Waller’s remarks countered market expectations that the Fed would start cutting rates at its March meeting and lop perhaps 1.5 percentage points from the benchmark policy rate by the end of the year. After he spoke, traders pared bets that the Fed would in March reduce the key rate that has been kept at 5.25% to 5.5% since July.

The Federal Open Market Committee raised borrowing costs by 525 basis points (bps) to 5.25-5.5% from March 2022 to July 2023.

It will hold its first policy meeting of the year on Jan. 30-31.

The trader expects the peso to remain weak against the dollar on Thursday amid expectations of a firm US retail sales report.

The trader expects the peso to move between PHP 55.85 and PHP 56.05 a dollar, while Mr. Ricafort sees it ranging from PHP 55.80 to PHP 56.