Peso rises ahead of Fed
THE PESO traded almost flat against the dollar on Wednesday as most market players stayed on the sidelines ahead of the conclusion of the US Federal Reserve’s meeting.
The local currency closed at P50.34 versus the dollar yesterday, two centavos higher from Tuesday’s close of P50.36 versus the greenback.
The peso opened the session at P50.33 versus the dollar, while its worst showing was at P50.35 against the greenback. Its peak for the day was at P50.28 per dollar.
Dollars traded on Wednesday increased to $394.8 million from the $ 314.2 million that changed hands in the previous session.
“The peso’s movement is just flat and we just traded in a very tight range,” a trader said in a phone interview on Wednesday. “There was not much movement as I think everyone else is just waiting for the FOMC (Federal Open Market Committee) meeting tonight.”
Global markets are expecting the US central bank to tighten policy rates anew in its two-day meeting after its last move in December 2016, backed by the continued recovery of the United States, as seen in some economic data released these past few months.
Data released by the US Labor Department just last week revealed non-farm payrolls soared by 235,000 jobs in February on the back of the construction sector’s surge in nearly ten years to 58,000, its largest gain since March 2007.
“The FOMC is expected to hike interest rates by a quarter of a basis point so it’s pretty much factored in already. But in terms of the reaction of the market, I’m not sure, but it will highly depend on what [ Fed Chair Janet L.] Yellen will say in the question and answer portion so I think that is where the market will react when they try to analyze what she will say,” the trader added.
Meanwhile, another trader said in a phone interview on Wednesday: “We saw some position liquidation [ yesterday,] a lot of foreign counter-parties were selling.”
“Ahead of the FOMC there was quite some selling and offshore prices traded at a tight discount, so there were more selling but we also saw some corporate demand to counter the selling,” the trader added.
Another trader said in a phone interview on Wednesday: “Nothing really happened today as everyone is expecting the interest rate hike by the Fed during their FOMC meeting.”
“The peso just ended lower against the dollar as it tracked regional and major currencies yesterday,” the trader added.
For today, one trader sees the peso playing at P50.25- P50.45 against the greenback, while the other trader said the local currency may see its support at P50 while its resistance at P50.40-tothe dollar level.
For their part, analysts at Nomura Global Research said in a note dated March 15 that the Bangko Sentral ng Pilipinas’ (BSP) decision to not hike rates despite threats of a spike in inflation and the Fed increasing policy rates “could be pivotal in determining whether PHP underperformance continues, or if investors believe that BSP will be active in stemming depreciation and inflationary pressures.”
BSP Governor Amando M. Tetangco, Jr. had said that they remain firm and confident on their decision to keeping local policy rates unchanged, noting that there is no need to make such move even though global markets have already priced in that the US central bank will lift borrowing costs. However, economists at Nomura expect the BSP to increase rates by 50 basis points in the first half of this year, noting that “with the next meeting on March 23 a close call.”