Peso sinks to fresh low on hawkish Fed comments

THE PESO continued to slump to hit a fresh three-month low on Wednesday as market players are now expecting the US Federal Reserve to hike rates one more time before the close of 2017.

The local currency ended at P50.29 per dollar yesterday, plunging by 19 centavos from its P50.10 finish on Tuesday.

Yesterday’s close was also the peso’s worst showing in nearly more than three months or since it ended at P50.325 versus the greenback on March 24.

The peso opened the session at P50.17 against the dollar, while its best showing for the day was just at P50.16 to the dollar. Its intraday trough was seen at P50.295, closer to yesterday’s closing rate.

Dollars traded totalled $727.25 million yesterday, declining from the $ 1.155 billion that changed hands in the previous session.

Traders attributed the peso’s slump versus the dollar to hawkish remarks from several Fed policy makers, signalling that the US central bank could lift borrowing costs anew by yearend.

“The peso again weakened today still because of bets of another US rate hike before the year ends, as suggested by many Fed officials,” one trader said by email on Wednesday.

Similarly, another trader said by phone: “What triggered the decline of the peso was the rhetoric of the Fed. They were very hawkish.”

“What could have also contributed to a weaker dollar was the weakness of overseas Filipino worker remittances, thus the market aggressively shortened their positions and they were hoping for a catch up in the peso, particularly on good news such as the government’s tax reform program and sustainable economic growth story of the Philippines,” the trader said.

The outlook for inflation and the future of financial stability are emerging as duelling concerns at the heart of a debate at the

US central bank over how fast to proceed on future interest-rate hikes.

Chicago Federal Reserve Bank President Charles Evans on Tuesday became the latest to express worries on that front, saying he is increasingly concerned that a recent softness in inflation is a sign the US central bank will struggle to get price pressures back to its 2% objective.

After a speech at the Commonwealth Club of California, Dallas Fed President Robert Kaplan had similar concerns, saying he wants to wait for more evidence that the recent retreat in inflation would be temporary.

Meanwhile two other Fed policy makers, speaking at a conference on macroprudential policy in Amsterdam, suggested they are concerned less about raising rates too fast or too high than about keeping them too low for too long.

Boston Fed President Eric Rosengren said on Tuesday that the era of low interest rates in the United States and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making.

Earlier, at the same conference, Fed Vice Chair Stanley Fischer warned that while the United States and other countries have taken steps to make their housing finance systems stronger, a prolonged period of low interest rates has helped boost house prices, which was a precursor to the last financial crisis.

The US central bank decided to hike borrowing costs by a quarter of a percentage point within 1% to 1.25% during its two-day meeting last week. This is the second time the regulator increased rates this year since it increased rates during its March policy meeting.

For Thursday, one trader sees the exchange rate settling within P49.40 to P50.10 while the other trader said the peso may play within P49.15 to P49.45 to the dollar. “The peso might appreciate due to likely weak US existing home sales data,” one trader said.