Peso weakens to new 18-month low

The peso sank to a new 18-month low against the dollar on Monday, inching closer to the PHP 58 level, after the Bangko Sentral ng Pilipinas (BSP) chief hinted it could cut rates earlier than the US Federal Reserve.

The local unit closed at PHP 57.90 per dollar on Monday, weakening by 28 centavos from its PHP 57.62 finish on Friday, Bankers Association of the Philippines data showed.

This was the peso’s worst finish in over 18 months or since its PHP 58.19-per-dollar close on Nov. 10, 2022.

The peso opened Monday’s session slightly weaker at PHP 57.68 against the dollar, which was already its intraday best. Its worst showing was its closing level of PHP 57.90 versus the greenback.

Dollars exchanged sank to USD 1.21 billion on Monday from USD 1.76 billion on Friday.

“The peso weakened significantly amid potentially hawkish remarks from various Federal Reserve officials this week,” a trader said in an e-mail.

The peso was dragged down by dovish signals from BSP Governor Eli M. Remolona, Jr. last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar was broadly steady on Monday as investors awaited further clues to help chart the US interest rate path in the wake of cautious comments from Federal Reserve officials, even as inflation shows signs of cooling, Reuters reported.

Data last week showed US consumer prices rose less than expected in April, leading to markets pricing in 50 basis points (bps) of Fed rate cuts this year. Yet various Fed officials subsequently sounded words of caution about when rates may fall, prompting market pricing to fall just below the 50-bp mark.

The dollar index, which tracks the currency against six major peers, was last very slightly higher on Monday at 104.49.

Four Fed speakers, including Atlanta Fed President Raphael Bostic, were due to speak on Monday. Markets will also focus on minutes of the Fed’s last meeting due on Wednesday.

Meanwhile, Mr. Remolona last week said the Monetary Board’s easing cycle could begin as early as August, before their expectation of a September start to the Fed’s own rate cuts.

He said they are now “somewhat less hawkish than before” and expect one or two 25-bp cuts within the second semester.

For Tuesday, the trader said the peso could weaken further due to potentially hawkish signals from Fed officials overnight.

The trader sees the peso moving between PHP 57.75 and PH P58 per dollar, while Mr. Ricafort expects it to range from PHP 57.70 to PHP 57.80. — A.M.C. Sy with Reuters