Currencies 2 MIN READ

Peso weakens on tightening view

July 7, 2023By BusinessWorld

The peso continued to weaken against the dollar on Thursday as minutes of the US Federal Reserve’s June meeting affirmed views of further tightening.

The local currency closed at PHP 55.50 versus the dollar on Thursday, dropping by 11.50 centavos from Wednesday’s PHP 55.385 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Thursday’s session weaker at PHP 55.51 per dollar. Its weakest showing was at PHP 55.64, while its intraday best was at PHP 55.43 against the greenback.

Dollars traded dropped to USD 1.06 billion on Thursday from the $1.16 billion seen on Wednesday.

The peso was dragged lower by the hawkish tone of the minutes of the Fed’s June 13-14 meeting, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A united US Federal Reserve agreed to hold interest rates steady at the June meeting as a way to buy time and assess whether further rate hikes would be needed, even as the vast bulk expected they would eventually need to tighten policy further, according to meeting minutes released on Wednesday, Reuters reported.

While “some participants” wanted to move ahead with a rate hike in June because progress in cooling inflation had been slow, “almost all participants judged it appropriate or acceptable to maintain” the federal funds rate at the existing 5% to 5.25%, the minutes said.

“Most of those participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress,” toward returning inflation to 2% from its current level more than twice that.

The minutes added detail to the policy statement and economic projections issued after the June 13-14 session, when the Fed ended its 10-meeting streak of rate hikes with a decision to hold the benchmark federal funds rate steady.

That sent the dollar slightly higher alongside Treasury yields, as bets firmed that the Fed will resume its rate-hike campaign this month and that rates would stay higher for longer in order to tame inflation.

Against the dollar, the euro touched a near one-week low of USD 1.0843 in early Asia trade, while sterling dipped by 0.08% to USD 1.26925.

The dollar index rose by 0.04% to 103.38.

For Friday, Mr. Ricafort sees the peso weakening further and moving from PHP 55.80 to PHP 55.90 per dollar. — AMCS with Reuters

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