Peso weakens on dollar rally ahead of Fed

THE PESO weakened on Wednesday as the dollar rallied ahead of the conclusion of the US Federal Reserve’s policy meeting.

The local currency closed at P51.86 against the greenback, 12 centavos weaker than the P51.74- per- dollar finish last Monday.

The peso traded weaker the whole day, opening the session at P51.85. It slid to as low as P51.93, while its best showing for the day was at P51.82.

Dollars traded stood flat at $556.2 million.

Traders interviewed on Wednesday said the peso slid as the dollar rallied against other currencies.

“The peso weakened [ Wednesday] following the recent wide-scale rally of the dollar versus other currencies on optimistic US inflation outlook ahead of the Fed policy meeting,” a currency trader said through e-mail.

On Tuesday (Manila time), Reuters reported that US consumer prices, as measured by the personal consumption expenditures (PCE) price index, jumped 2% in March compared with the same period last year. This followed the 1.7% rise in February and was its biggest gain since February 2017.

The rise in the annual inflation gauges, as reported by the US Commerce Department, was already expected by economists as well as the Fed officials. It is not expected to alter the gradual path of the central bank to rate increases.

“I think [investors] are positioning ahead of the meeting’s conclusion tonight,” another trader said on Wednesday.

“They were already buying the dollar because they’re seeing not-so-good data on other currencies such as the Euro and the British pound, while data in the US for the past few days were in support of the dollar.”

Markets were waiting for the results of the two-day meeting of the Fed’s Federal Open market Committee and whether it will hike its benchmark rates.

For today, the second trader sees the peso moving between P51.70 and P52 versus the dollar, while the other gave a slightly higher range of P51.75-P52.05.

“The local currency is likely to further weaken as investors will factor in possible hawkish statements from the US Federal Reserve in its policy meeting,” the first currency trader noted.

Most Asian currencies also weakened on Wednesday as the dollar held firm near a four-month high on expectations that a strong US economy would lead to more rate hikes this year.

Though market participants don’t expect a Federal rate hike at the end of Wednesday’s meeting, they are more optimistic about an increase in borrowing costs in June on the back of rising inflation and low unemployment.

The dollar index, which broke above its 200- day moving average this week, was trading near its fourmonth high of 92.57.

Negative sentiment in regional currencies was also due to a decline in export orders in China, which highlighted potential risks to the trade sector from a bitter China-US trade dispute.

Factory activity in South Korea also contracted for a second month in April as output and new orders shrank more quickly.

China’s yuan dropped to a 2-1/2 month low after the central bank set a much lower official fixing, while the South Korean won fell nearly 1%.

A rise in US bond yields also undermined regional currencies, with Thai baht and Indonesian rupiah, each shedding more than a quarter percent against the dollar. •