THE PESO is seen to strengthen against the dollar for the rest of the week, propelled by the sovereign debt rating upgrade from S&P Global Ratings.

On Tuesday, the local currency barely moved versus the greenback, as market participants stayed on the sidelines ahead of the US Federal Reserve policy meeting.

Michael L. Ricafort, Rizal Commercial Banking Corp. economist, said the peso will likely strengthen after the global debt watcher raised the country’s long-term sovereign credit rating by a notch to “BBB+” from “BBB.”

“The latest credit rating upgrade by S&P…will be positive for the peso and the rest of the local financial markets, as the Philippines’ higher credit ratings will increase international investor confidence and interest to put more money in the country,” Mr. Ricafort said in a text message.

S&P on Tuesday upgraded the Philippines’ debt rating to “BBB+,” two notches above the minimum investment grade. It also assigned a “stable” outlook to the rating, which means it expects to maintain this grade in the next six months to two years.

“We raised the rating to reflect the Philippines’ strong economic growth trajectory, which we expect to continue to drive constructive development outcomes and underpin broader credit metrics over the medium term,” S&P said.

“The country’s latest credit rating upgrade may fundamentally allow a bigger number of international/global funds to increase investment exposures in the country,” said Mr. Ricafort. “This will also increase investor appetite on the Philippines as the credit rating upgrade reduces risk premium, which would lead some easing of local interest rates/bond yields and more price gains in the local financial markets.”

Nicholas Antonio T. Mapa, ING Bank N.V. Manila senior economist, said the upgrade “limits the reliance on interest rate differentials” to push the local unit, as foreign flows are “seen to continue even with less attractive carry trade opportunities.”

“[T]he upgrade also shows that ratings agencies view the external position of the Philippines as favorable with its more than adequate level of gross international reserves and the proverbial “aces up our sleeves” in OF (overseas Filipino) remittances and BPO (business process outsourcing) receipts, two sources of FX (foreign exchange) akin to the Philippine dynamic,” Mr. Mapa said in an e-mail on Tuesday.

Meanwhile, a foreign exchange trader said on Tuesday the peso-dollar move will be dependent on the decision of the Fed’s policy-making body Federal Open Market Committee (FOMC).

“By the time we come in, the FOMC meeting is already out. The FOMC decision will dictate the move,” the trader said in a mix of English and Filipino.

Fed officials are expected to keep interest rates unchanged during its third policy meeting this year, even as US President Donald J. Trump urged the central bank to use available tools to move the economy.

“We have a potential to go…up like a rocket if we did some lowering of rates, like one point, and some quantitative easing,” Mr. Trump said in a series of tweets.

For the rest of the week, the trader expects the peso to move between P52 and P52.25, while Mr. Ricafort gave a P51.80-P52.10 range. — K.A.N. Vidal

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