Peso strengthens vs dollar before Fed policy decision

The peso climbed further against the dollar on Wednesday as players positioned ahead of the US central bank’s policy decision.

The currency strengthened by 9.6 centavos to end at PHP 62.739 versus the greenback from its PHP 62.835 finish on Tuesday, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Wednesday’s session slightly stronger at PHP 62.80 per dollar, which was already its worst showing. It logged an intraday best of PHP 62.68 against the greenback.

Dollars traded went down to USD 1.349 billion from USD 1.899 billion.

The peso rose on some profit taking ahead of the US Federal Reserve’s policy statement, a trader said by phone. However, still elevated oil prices capped its gains, the trader added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso was supported by the correction in oil prices on Wednesday.

Inflows amid the seasonal increase in importation activities this quarter could have also lifted the currency, he added.

For Thursday, the trader sees peso-dollar trading to be guided by the Fed’s policy signals after its meeting, possibly ranging from PHP 62.60 and PHP 63 against the dollar.

For his part, Mr. Ricafort sees the currency moving between PHP 62.65 and PHP 62.85.

The dollar pulled back from near multi-week highs on Wednesday as oil prices stalled and ahead of a Federal Reserve decision that traders expect will bring the first of several possible US interest rate hikes, Reuters reported.

Financial markets are betting heavily that Fed policymakers will lift their benchmark rate by a quarter of a percentage point, to a 3.75%-4% range, and signal further tightening ahead.

The dollar index, which measures the currency against major peers, was down less than 0.1% at 99.59.

Currency markets have not moved that much while global bond yields have climbed in concert over recent weeks, because sovereign bonds have moved in tandem and not shifted relative differences between countries’ yields very far.

But the dollar gained traction in the last few sessions on thinking that despite President Donald J. Trump hiring Fed Chair Kevin Warsh to cut interest rates, he will need to hike a few times to show that the Fed is serious about taming inflation fanned by the Iran war and the resulting energy price surge. — Aaron Michael C. Sy with Reuters