THE PESO rebounded against the greenback on Thursday on the back of dovish remarks from the US Federal Reserve, which reduced chances of another tightening move from the regulator within the year.
The peso ended at P50.56 versus the dollar yesterday, gaining eight centavos from its P50.64-per-dollar close on Wednesday.
The local unit traded stronger for the whole day after it opened at P50.53 versus the foreign currency. Its intraday trough was just at P50.59-to-the-dollar, while its peak was at P50.48 against the greenback.
Dollars traded yesterday dropped to $560.5 million from the $932 million that exchanged hands on Wednesday.
Traders attributed the peso’s strength to dovish inflation comments from the Fed at the end of their two-day Federal Open Market Committee (FOMC) meeting, with policy makers saying they expect inflation to soften before the year ends, fueling bets of a delayed interest rate hike.
“Market traded lower due to muted and dovish Fed decision, they acknowledge lower inflation target, so the target for the next rate hike is quite unclear as to when it will happen, resulting to a negative dollar,” one trader said by phone on Thursday.
Similarly, another trader said: “We had the FOMC statement early [yesterday] morning where they maintained rates, which was widely expected, and they acknowledged inflation to be sluggish which dampened the probability of a follow-up rate hike this year.”
The Federal Reserve kept interest rates unchanged on Wednesday and said it expected to start winding down its massive holdings of bonds “relatively soon” in a sign of confidence in the US economy.
The Fed kept its benchmark lending rate in a target range of 1% to 1.25% as expected, and said it was on track to continue the slow path of monetary tightening that has lifted rates by a percentage point since 2015.
In a statement following a two-day policy meeting, the US central bank’s rate-setting committee indicated the economy was growing moderately and job gains had been solid.
It also noted that both overall inflation and a measure of underlying price gains had declined — trends which have worried some policy makers — but that it expected the economy to continue strengthening.
For today, the first trader expects the peso to move between P50.50 and P50.70 versus the dollar, while the second sees a P50.40-P50.70 range.
“For now, market players are staying cautious, waiting for the next catalyst that will dictate the movement of dollar-peso,” one trader noted.
Asian currencies rallied on Thursday as the US Federal Reserve’s cautious inflation assessment sent the dollar to 13-month lows and rekindled interest in emerging markets, with the Chinese yuan surging to a more than nine-month high.
The dollar skidded to 13-month lows against a basket of currencies, while US Treasury yields tumbled.
“We think the Fed’s statement was slightly polarized as they did sound a bit more convinced about job market recovery, though they were unequivocally admitting to the inflation miss,” said Vishnu Varathan, senior economist at Mizuho Bank in Singapore.
On Thursday, the Chinese yuan jumped to its highest since October 2016 against the dollar.
The Korean won surged against the dollar to its highest in four months. The Thai baht rose to its highest in more than two years against the dollar. The Indian rupee rose to a more than two-month high against the dollar on Thursday. — Janine Marie D. Soliman with Reuters