Peso rallies as stocks rebound

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THE PESO continued to rally against the dollar on Wednesday, Feb. 7, on the back of the rebound in the local bourse as well as the continued market expectations of a rate hike from the Bangko Sentral ng Pilipinas (BSP) on Thursday, Feb. 8.

The local currency ended Wednesday’s session at P51.12 against the greenback, 34 centavos stronger than the P51.46-per-dollar finish on Tuesday.

The peso traded stronger the whole day, opening the session at P51.31 versus the dollar, while its intraday trough was seen at P51.35. Its best showing for the day was at P51.05 to the greenback.

Dollars traded rose to $1.03 billion on Wednesday from the $920.3 million that changed hands in the previous session.

“The peso recovered [Wednesday], as the rebound in local stocks increased the peso’s attractiveness,” Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines, said in an e-mail on Wednesday.

The Philippine Stock Exchange climbed 1.37% or 117.14 points to 8,667.56 after a two-day rout.

Meanwhile, a trader said the peso traded steeply higher “due to the expectations that the BSP will hike rates [today] by 25 basis points.”

Bets on the BSP hiking its benchmark rate by 25 basis points during its monetary policy meeting today arose after the release of data showing a faster inflation print in January.

In a previous statement, ING Bank N.V. Manila Senior Economist Jose Mario I. Cuyegkeng said the likelihood of the local central bank to tighten “has increased significantly.”

However, some economists expect the BSP to hike its interest rates in the next monetary policy meeting in March, as Security Bank Corp. economist Angelo B. Taningco said it will be worthwhile for the local central bank to monitor future inflation trends before tightening.

For Thursday, the trader expects the peso to move between P51 and P51.20, while Mr. Dumalagan gave a wider range of P51 to P51.50.

“The peso may benefit from possible hawkish signals from the BSP as a result of the recent spike in domestic inflation,” Mr. Dumalagan added.

All Asian currencies recovered their losses against the US dollar on Wednesday as a degree of calm returned to the region’s equity markets.

MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.8% after rising as much as 2% in early trade.

Most of the volatility is concentrated in stocks as Asian equity markets followed US stock indices closely. However, the FX (foreign exchange) and interest rates space has been relatively quiet despite the sharp spike in the VIX (volatility gauge), pointing to a contained fallout in just one asset class,” DBS Group strategists Eugene Leow and Philip Wee said in a note.

“With the rebound in the Dow last night, some semblance of stability has likely been established,” they said on Wednesday.

The dollar index against a basket of six major currencies was mostly flat at 89.608, edging away from the two-week peak of 90.034 set overnight. — Karl Angelo N. Vidal with Reuters