Peso weakens on Fed rate bets
THE PESO weakened versus the dollar on Monday, moving in sync with regional currencies as higher yields in the United States supported the currency amid continued bets of a December rate hike.
The local unit closed at P51.08 yesterday, tumbling by 26.5 centavos from the P50.815-per-dollar finish logged on Friday. This is the peso’s worst showing in two weeks or since the P51.10 rate logged on Sept. 18.
The peso traded weaker throughout the session as it opened at P50.90, which also happened to be its best showing that day. It hit P51.10 as its intraday low.
Two traders interviewed yesterday said the peso’s performance largely reacted to a continued dollar rally, which came despite mixed results of key economic data released recently.
“The peso depreciated [ yesterday] despite weak US reports on personal spending and core PCE ( personal consumption expenditures) inflation, due to expectations of some tax cuts in the US. Increased expectations of a rate hike this year also pushed the dollar higher,” one trader said.
US consumer spending — which accounts for more than two-thirds of the economy — rose by a mere 0.1% in August, reeling from the impact of Hurricane Harvey.
Despite this, market players still expect the US Federal Reserve to hike rates by December.
“The short-term trend is dollar strength for the past week or so. We are also seeing higher Treasury yields, which is also helping the dollar rally,” a second trader said.
Higher US Treasury yields helped bolster the greenback, as rates for 10-year papers rose to 2.36% in Asian trading compared to Friday’s US close of 2.326%, Reuters reported.
The second trader noted that the Bangko Sentral ng Pilipinas likely stepped in during trading to smoothen the sharp foreign exchange swing observed yesterday as the local currency moved nearly 30 centavos from Friday’s closing rate — a “very rare” occurrence.
Dollars traded on Monday reached $ 888 million, higher than the $ 740.3 million which exchanged hands on Friday. Traders said average daily volumes usually settled within $500-600 million.
For today, the first trader expects the peso to trade within P50.90 to P51.20, noting that the peso could move sideways or likely downward depending on the results of latest manufacturing data in the US. Hawkish statements from Dallas Fed President Robert S. Kaplan could offset the impact of weaker factory data, the trader added. On the other hand, the second trader expects a higher range within P51 to P51.20.