Peso weak­ens after Fed min­utes

Business World - - BANKING & FINANCE - Tubayan E.J.C.

THE peso slid on Thurs­day de­spite the slightly dovish tone of the min­utes of the US Fed­eral Re­serve’s Sept. 19-20 meet­ing, with the mar­ket buy­ing the dol­lar.

The lo­cal cur­rency fell to P51.43 against the green­back, eight cen­tavos weaker than the P51.35- per- dol­lar close in the pre­vi­ous trad­ing ses­sion.

At the ses­sion’s open, the peso shed five cen­tavos to P51.40. It dropped to as low as P51.45, while its strong­est show­ing for the day was at P51.32 ver­sus the dol­lar.

Dol­lars traded were val­ued at $821.1 mil­lion, slightly up from the $ 801.8 mil­lion recorded in Wed­nes­day.

An­a­lysts said the peso weak­ened as the mar­ket bought the dol­lar after the Fed­eral Open Mar­ket Com­mit­tee (FOMC) min­utes car­ried a dovish tone.

“The peso strength­ened first due to the dovish FOMC min­utes overnight, but we still saw buy­ing in­ter­est ev­ery time it trades lower,” said a trader in­ter­viewed over the phone.

“So from a high, we slowly traded lower, clos­ing even weaker,” the trader added.

Fed­eral Re­serve pol­icy mak­ers had a pro­longed de­bate about the prospects of a pickup in in­fla­tion and slow­ing the path of fu­ture in­ter­est rate rises if it did not, ac­cord­ing to the min­utes of the US cen­tral bank’s last pol­icy meet­ing on Sept. 19-20 re­leased on Wed­nes­day.

The read­out of the meet­ing, at which the Fed an­nounced it would be­gin this month to re­duce its large bond port­fo­lio mostly amassed fol­low­ing the fi­nan­cial cri­sis and unan­i­mously voted to hold rates steady, also showed that of­fi­cials re­mained mostly san­guine about the eco­nomic im­pact of re­cent hur­ri­canes.

“Many par­tic­i­pants ex­pressed con­cern that the low in­fla­tion read­ings this year might re­flect... the in­flu­ence of de­vel­op­ments that could prove more per­sis­tent, and it was noted that some pa­tience in re­mov­ing pol­icy ac­com­mo­da­tion while as­sess­ing trends in in­fla­tion was war­ranted,” the Fed said in the min­utes.

As such sev­eral said that they would fo­cus on in­com­ing in­fla­tion data over the next few months when de­cid­ing on fu­ture in­ter­est rate moves.

Nev­er­the­less, many pol­icy mak­ers still felt that an­other rate in­crease this year “was likely to be war­ranted,” the Fed said.

Fed Chair Janet L. Yellen has re­peat­edly ac­knowl­edged since the meet­ing that there is ris­ing un­cer­tainty on the path of in­fla­tion, which has been re­treat­ing from the Fed’s 2 % tar­get rate over the past few months.

How­ever, Ms. Yellen and a num­ber of other key pol­icy mak­ers have made plain they ex­pect to con­tinue to grad­u­ally raise in­ter­est rates given the strength of the over­all econ­omy and con­tin­ued tight­en­ing of the la­bor mar­ket.

Land Bank of the Philip­pines mar­ket econ­o­mist Guian An­gelo S. Du­mala­gan said on Thurs­day: “The peso gen­er­ally de­pre­ci­ated to­day, de­spite some tem­po­rary moves to­wards the op­po­site di­rec­tion, as the FOMC min­utes still pointed to an­other US rate hike this year even as they raised doubts about the Fed’s ini­tial view of low in­fla­tion be­ing tran­si­tory.”

For to­day, an­a­lysts said the peso-dol­lar pair may trade side­ways ahead of US in­fla­tion data.

“They are ex­pect­ing that it is slightly bet­ter than ex­pected,” the first trader noted, as it would af­firm the Fed’s view on its third pol­icy tight­en­ing this year.

“The mar­ket will stay on the side­lines ahead of the con­sumer price in­dex. If it trades higher, we will see profit tak­ing,” the trader added.

Mr. Du­mala­gan shared this view, say­ing the peso will de­pre­ci­ate fur­ther “due to likely up­beat data on US pro­ducer prices and ex­pec­ta­tions of stronger US in­fla­tion.”

“In­vestors might fo­cus on the lat­ter re­port to de­ter­mine whether low in­fla­tion still re­mains a ma­jor con­cern, as high­lighted in the FOMC min­utes,” he added.

The trader ex­pects a P51.30 to P51.50 per dol­lar range to­day, while Mr. Du­mala­gan sees a P51.35 to P51.55 range. 

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