THE PESO weakened against the dollar on Wednesday, with the greenback steadying amid easing worries over the banking sector and ahead of the US Federal Reserve’s policy decision.

The local currency closed at P54.50 versus the dollar on Wednesday, dropping by six centavos from Tuesday’s P54.44 finish, data from the Bankers Association of the Philippines’ website showed.

The peso opened Wednesday’s session stronger at P54.30 per dollar. Its intraday best was at P54.28, while its worst showing was at P54.75 versus the greenback.

Dollars traded climbed to $1.4 billion on Wednesday from the $1.077 billion recorded on Tuesday.

“The peso weakened amid improving market optimism after the US Treasury temporarily considered to expand FDIC (Federal Deposit Insurance Corp.) coverage on all US bank accounts,” a trader said in an e-mail.

US Treasury department staff are studying whether federal regulators have enough emergency authority to insure deposits above the current $250,000 cap on accounts without the consent of Congress, Reuters reported.

One legal framework being looked at for expanding FDIC insurance would use the Treasury department’s authority to take emergency action and lean on the Exchange Stabilization Fund.

The dollar was pinned near five-week lows on Wednesday ahead of the conclusion of the US Federal Reserve’s policy meeting, with investors awaiting clarity on the path the central bank is likely to take in the wake of global banking turmoil.

The US dollar index, which measures the currency against six peers, was at 103.19, just above the five-week low of 102.99 touched overnight.

Investor sentiment remained fragile, with worries over the outlook for the banking sector starting to ease after sharp volatility in the market in the past few weeks following high-profile US banking failures earlier in the month and the rescue of lender Credit Suisse Group AG at the weekend.

The peso fell ahead of the conclusion of the Fed’s policy meeting, with markets expecting a 25-basis-point (bp) rate hike that could be matched by the Bangko Sentral ng Pilipinas (BSP) in its review on Thursday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Fed was set to announce its policy decision overnight. The US central bank hiked its target interest rate by 25 bps at its Jan. 31 to Feb. 1 meeting to a range between 4.5% and 4.75%.

Since March 2022, the Fed has raised rates by a total of 450 bps.

For its part, the BSP hiked borrowing costs by 50 bps for a second straight meeting last month, bringing its key rate to 6%.

The Philippine central bank has hiked rates by a total of 400 bps since May 2022.

For Thursday, the trader said the peso could appreciate against the dollar ahead of the BSP’s decision.

The trader and Mr. Ricafort expect the peso to move between P54.40 and P54.60 against the dollar on Thursday. — A.M.C. Sy with Reuters