Peso weakens on bargain hunting

The peso weakened against the dollar on Wednesday due to bargain hunting and even as the greenback dropped versus major global currencies amid expectations of rate cuts from the US Federal Reserve. 

The local currency finished at PHP 55.55 per dollar on Wednesday, weakening by 15 centavos from its PHP 55.40 close on Friday, data from the Bankers Association of the Philippines showed.

The peso opened Wednesday’s trading session weaker at PHP 55.45 versus the dollar, which was already its intraday best. Meanwhile, its worst showing was at PHP 55.888 against the greenback.

Dollars traded rose to USD 1.531 billion on Wednesday from the USD 1.083 billion seen on Friday.

Philippine financial markets were closed on Dec. 25-26 due to nonworking days for Christmas.

“The local currency weakened from bargain-hunting after the peso hit new [highs] last Friday,” a trader said in an e-mail.

Friday’s close of PHP 55.40 was a near one-month high for the peso as it was its best finish since PHP 55.30 on Dec. 7.

The peso weakened as holiday spending tapered off, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The Christmas holiday spending rush together with the seasonal surge in OFW (overseas Filipino worker) remittances and conversion to pesos (is) already done and over with, though could still be somewhat offset by some seasonal increase spending ahead of the New Year holidays this coming long weekend,” Mr. Ricafort said.

The peso dropped even as the dollar was weaker against major global currencies on Wednesday amid market expectations of policy easing from the Fed by next year, he noted.

The dollar remained under pressure on Wednesday as expectations that the Federal Reserve would soon cut interest rates took hold in the market, with thin year-end flows keeping movements limited, Reuters reported.

The dollar index, which measures the US currency against six rivals, was at 101.47, just shy of the five-month low of 101.42 it touched last week. The index is on course for a 1.9% drop in 2023 after two straight years of strong gains, driven by first the anticipation of and then the actual hiking of rates by the Fed to battle inflation.

Markets are now pricing in a 79% chance of a rate cut starting in March 2024, according to CME FedWatch tool, with over 150 basis points of cuts priced in for next year.

For Thursday, the peso may rebound on the back of demand for the currency as the year closes, the trader said.

The trader expects the peso to move between PHP 55.4 and PHP 55.65 on Thursday, while Mr. Ricafort sees the local unit ranging from PHP 55.45 to PHP 55.65 versus the dollar. — Keisha B. Ta-asan with Reuters