Peso strengthens on Fed bets

THE PESO continued to climb on Tuesday on profit taking ahead of the release of minutes of the US Federal Reserve’s meeting earlier this month, and as the dollar weakened amid dovish expectations for the US central bank.

The local unit closed at a fresh three-month high of P55.39 per dollar on Tuesday, strengthening by 16 centavos from its P55.55 finish on Monday, based on Bankers Association of the Philippines data.

This was the peso’s best close in more than three months or since its P55.19-per-dollar finish on Aug. 2.

The peso opened Tuesday’s session stronger at P55.43 against the dollar, which was already its weakest showing. Its intraday best was at P55.34 versus the greenback.

Dollars exchanged went up to $1.6 billion on Tuesday from $1.51 billion on Monday.

The peso rose on Tuesday as the dollar weekend against most global currencies on expectations that the Fed will pause at its next meeting and start its easing cycle next year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso appreciated further amid cautious profit taking ahead of the release of Fed policy minutes,” a trader added.

The dollar languished near its lowest in two-and-a-half months on expectations the US Federal Reserve is likely done with interest rate hikes, Reuters reported.

Investor focus on Tuesday will firmly be on minutes of the Federal Reserve’s last meeting to gauge which way rates are headed.

Traders have nearly fully priced in the likelihood that the Fed will keep interest rates unchanged in December, and some have started pricing in rate cuts as soon as March, according to the CME Group’s FedWatch tool.

Some remain cautious as economic data could change the monetary policy outlook.

Treasury yields were lower in the wake of solid bidding in the $16-billion sale of 20-year Treasury bonds on Monday that suggested the market still anticipates inflation will decelerate and the Fed will cut rates next year.

Lower yields kept the dollar on the back foot, with the dollar index, which measures the US currency against a basket of six major currencies, down by 0.135% at 103.31, having touched near three month low of 103.17 earlier in the session.

The Japanese yen strengthened 0.22% to 148.03 per dollar, lifting away from the one-year low of 151.92 it touched last week.

The US central bank kept its benchmark interest rate steady at the 5.25%-5.5% range for a second straight time during its Oct. 31 to Nov. 1 meeting.

It has hiked rates by a cumulative 525 basis points since it began its tightening cycle in March 2022.

The Federal Open Market Committee will next meet on Dec. 12-13 to review policy.

The peso also continued to be supported by the seasonal increase in remittances ahead of the holiday season, Mr. Ricafort added.

For Wednesday, the peso could rise further on expectations of weak US data, the trader said.

The trader sees the peso moving between P55.25 and P55.50 per dollar on Wednesday, while Mr. Ricafort expects it to range from P55.30 to P55.50. — AMCS with Reuters