Peso weakens amid hawkish Fed comments
THE PESO depreciated against the dollar on Monday amid signals from a US Federal Reserve official that borrowing costs may need to remain elevated in 2024.
The local unit closed at P55.87 per dollar on Monday, weakening by 21.5 centavos from its P55.655 finish on Friday, Bankers Association of the Philippines data showed.
The peso opened Monday’s session sharply weaker at P55.80 against the dollar. Its intraday best was at P55.76, while its worst showing was at P55.875 versus the greenback.
Dollars exchanged went down to $798.7 million on Monday from the $846.7 million recorded on Friday.
The peso was dragged down amid signals from a Fed official that rates may need to remain high in 2024 to tame inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
“The peso [weakened] after [New York Federal Reserve President John Williams] remarked that US policy makers did not discuss any rate cuts in their latest policy meeting,” a trader said in an e-mail.
Just days after a Federal Reserve meeting that penciled in an ample course of interest rate cuts next year, which in turn unleashed a broad rally in financial markets, one of the US central bank’s top policy makers pushed back on the ebullience on Friday, Reuters reported.
“We aren’t really talking about rate cuts right now,” New York Fed President John Williams said in an interview with CNBC. When it comes to the question of lowering rates, “I just think it’s just premature to be even thinking about that” as the central bank continues to mull whether monetary policy is in the right place to help guide inflation back to its 2% target, he said.
Mr. Williams was the first Fed official to speak in the wake of a policy meeting last week in which the central bank left its benchmark overnight interest rate unchanged in the 5.25%-5.5% range. With rates steady, the big shift in the Fed outlook was tied to projections of an easing of monetary policy next year.
Fed officials’ forecasts collectively priced in three-quarters of a percentage point in cuts in 2024, which would leave the policy rate in the 4.5%-4.75% range by the end of 2024. Those forecasts summarize the views of policy makers and are not an official Fed view, but they are nevertheless closely watched and the numbers helped spur sharp drops in bond yields while driving stock prices up.
The US central bank raised rates by a total of 525 basis points from March 2022 to July 2023.
For Tuesday, the trader said the peso could recover as the dollar could weaken due to hawkish bets on the Bank of Japan’s policy decision this week.
The trader sees the peso ranging from P55.70 to P55.95 per dollar on Tuesday, while Mr. Ricafort expects it to move between P55.75 and P55.95. —