Peso to drop ahead of Fed meet

THE PESO is expected to weaken this week as the dollar will likely strengthen amid safe-haven buying, propelled by expectations of another rate hike from the US Federal Reserve.

On Friday, the peso plunged to a one-month low of P52.88 versus the greenback from the previous close, as market players reacted to the local central bank’s decision to keep rates steady.

Week-on-week, the local unit also weakened from its P52.71 finish last Dec. 7.

Traders interviewed said the peso will likely decline further this week amid expectations that the US central bank will raise benchmark rates anew at its Dec. 18-19 meeting.

“Despite mixed remarks from US policy makers, majority are still in agreement about the need to raise interest rates gradually,” a market analyst said yesterday, adding that this will put downward pressure on the local currency starting Tuesday towards the end of the week.

Despite the anticipated Fed rate hike, expectations for policy tightening in the US next year dwindled as investors become wary about a potential economic growth slowdown.

Meanwhile, a foreign exchange trader said on Friday that the foreign exchange market will see “quiet trading” for this week, even as the greenback is expected to strengthen amid “repatriation of flows of multinational (companies).”

Aside from this, economic and political concerns in China and the Eurozone could prompt investors to prefer the safer greenback.

“The downbeat economic reports from China, France and Germany are on top of concerns regarding UK Prime Minister Theresa May’s ability to convince the British parliament to approve the Brexit deal,” the analyst added.

Amid anticipated headwinds for the peso this week, traders said these might be tempered by the seasonal influx of dollars from overseas Filipinos in time for the holidays.

For this week, the analyst expects the peso to trade between P52.60 and P53.10 versus the dollar, while the trader gave a P52.80-P53 forecast.