Peso weakens on BSP, Fed rate hike bets

THE PESO weakened against the dollar on Thursday due to corporate demand ahead of expected monetary policy tightening by the local and US central banks.

The local unit ended yesterday’s session at P54.075, 8.5 centavos weaker than the P53.99-per-dollar finish on Wednesday.

The peso opened the session stronger at P53.91 versus the US currency, which was also its best showing for the day. Meanwhile, its intraday low stood at P54.09 versus the greenback.

A foreign exchange trader said the peso weakened as offshore selling “faded” throughout the session.

“From its P53.91 opening rate, it quickly traded [weaker] I think due to corporate demand,” the trader said in a phone interview.

“We saw local buying below P54 as more corporate demand was interested in the P54 level.”

The trader added that the pesodollar pair traded relatively quiet during yesterday’s session. “It’s more of positioning in order to accommodate for the corporate demand.”

Another trader concurred, adding the peso depreciated “on bargain-hunting following the recent strength of the peso ahead of major monetary policy decisions next week.”

The Bangko Sentral ng Pilipinas (BSP) reiterated signals of “strong” monetary response to surging inflation when the Monetary Board meets on Sept. 27.

Previously, BSP Governor Nestor A. Espenilla, Jr. committed to “take strong immediate action” in response to the faster-than-expected 6.4% August inflation print.

The BSP has raised rates by a cumulative 100 basis points since May, with rates currently ranging at 3.5-4.5%.

Meanwhile, two more rate hikes in September and December are expected from the US Federal Reserve.

A number of Fed officials have signalled they are expecting further policy tightening in the coming months on the back of strong economic growth boosted by the tax cuts implemented December last year.

For Friday, the first trader expects the peso to move between P53.90 and P54.10 versus the dollar, while the other gave a P54-P54.20 range.

“The local currency might weaken ahead of likely upbeat US manufacturing and services data which could increase the appeal of the greenback over the peso,” the second trader noted in an e-mail. •