Peso weakens on strong US labor data

THE PESO reversed its gains against the dollar on Thursday on the back of upbeat US economic data and as market players stayed on the sidelines ahead of the Holy Week.

The local currency ended at P50.175 against the greenback yesterday, two- and- a- half centavos lower than its P50.15to-a- dollar finish logged last Wednesday.

Dollars traded slipped to $274.1 million yesterday from the $ 336 million seen the previous session.

“The peso depreciated today due to better-than-expected US ADP employment report and hints from the Federal Reserve of a reduction in its balance sheet later this year,” one trader said in an e-mail on Thursday.

Latest data from payrolls processor ADP bared that US corporates gained 263,000 workers last month, the largest since December 2014, that suggested that US labor market was tightening.

Most Federal Reserve policy makers think the central bank should take steps to begin trimming its $ 4.5- trillion balance sheet later this year as long as the economic data holds up, minutes from their last meeting showed.

The minutes released on Wednesday of the March 14-15 policy discussion, at which the Fed voted 9-1 to raise interest rates, also showed that the ratesetting committee had a broad discussion about whether to phase out or halt reinvestments all at once.

“Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year,” the Fed said in the minutes.

The Fed bought Treasury and mortgage- backed bonds on an unprecedented scale in the wake of the financial crisis to help keep interest rates low to spur hiring and growth.

Fed policy makers have previously indicated that any plan to shrink its portfolio would let the bonds naturally roll off, by not reinvesting them when they mature, once its interest rate hikes were “well under way.”

The Fed’s lifted its benchmark interest rate in March to a target range of between 0.75% and 1%, its second hike in three months, and signalled it remained on track to lift rates twice more this year.

In the minutes, almost all policy makers agreed that the timing of a change in balance sheet policy would depend on economic and financial conditions and generally preferred to taper or stop investments in both Treasury and mortgage-backed bonds.

“Gains were capped by soft US non- manufacturing data,” the trader said.

The Institute for Supply Management said its index of US non-manufacturing activity rose in March but at its slowest pace since October 2016 at 55.2% from the 57.6% figure seen in February, which was its highest since October 2015.

Meanwhile, another trader said in a phone interview yesterday: “It was only range trading since traders sold the peso and most stayed on the sidelines since it’s Holy Week next week already.”

“Most local banks trimmed their positions ahead of the holiday,” the trader added.

For Friday, both traders see the exchange rate moving within P50.10 to P50.30 versus the dollar.

“The peso might depreciate due to expectations of strong US non- farm payrolls report. The meeting between the Chinese and US presidents might also affect market sentiment,” one trader noted.