Peso weakens on hawkish Fed, fears over cases of subvariant
THE PESO weakened versus the greenback on Wednesday as the US Federal Reserve chief said they could tighten rates more aggressively to control rising inflation and amid the confirmation of local transmission of a new subvariant of the coronavirus disease 2019 (COVID-19).
The local unit closed at P52.45 per dollar on Wednesday, losing 2.5 centavos from its P52.425 finish on Tuesday, based on Bankers Association of the Philippines data.
The peso opened Wednesday’s session at P52.35 against the dollar. Its weakest showing was at P52.465, while its intraday best was at P52.35 versus the greenback.
Dollars traded went down to $805.9 million on Wednesday from $843.1 million on Tuesday.
The peso weakened following hawkish statement from Fed Chairman Jerome H. Powell, a trader said in a Viber message.
Mr. Powell, in his most hawkish remarks to date, said the US central bank will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat, Bloomberg reported.
“What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that,” Mr. Powell said Tuesday during a Wall Street Journal live event. “If that involves moving past broadly understood levels of ‘neutral,’ we won’t hesitate at all to do that.”
The Fed chair repeatedly stressed the need to curb the hottest inflation in decades during the roughly 35-minute interview, calling price stability “the bedrock of the economy” and acknowledging that some pain in achieving this — including a slight rise in the unemployment rate — was a cost worth paying in order to achieve it.
If the Fed doesn’t see clear and convincing evidence of abating inflationary pressures, “then we’ll have to consider moving more aggressively,” Mr. Powell said. “If we do see that, then we can consider moving to a slower pace.” The target range for the benchmark federal funds rate currently stand at 0.75% to 1%. The Federal Open Market Committee next meets June 14-15.
Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the weaker peso also reflects market worries following the local transmission of another Omicron subvariant.
Health Undersecretary Maria Rosario S. Vergeire on Tuesday said there has been local transmission of the Omicron subvariant BA.2.12.1 in some parts of the country. This is the dominant subvariant in the US and is said to be more contagious.
The Philippines has detected 17 cases of the subvariant, 16 of which were locally acquired while one was a returning Filipino.
For Thursday, Mr. Ricafort gave a forecast range of P52.30 to P52.50 per dollar, while the trader expects the local unit to move within P52.35 to P52.50. — L.W.T. Noble with Bloomberg
