Peso rebounds as Fed affirms rate cut view
THE PESO climbed against the dollar on Thursday as US Federal Reserve Chair Jerome H. Powell said they remain on track to cut benchmark interest rates within the year.
The local unit closed at P56.03 per dollar on Thursday, strengthening by 10 centavos from its P56.13 finish on Wednesday, Bankers Association of the Philippines data showed.
The peso opened Thursday’s session stronger at P56.01 against the dollar. Its weakest showing was at P56.075, while its intraday best was at P55.888 versus the greenback.
Dollars exchanged dropped to $1.32 billion on Thursday from $1.54 billion on Wednesday.
“The peso strengthened after Fed Chair Powell explicitly mentioned the case for eventual US policy rate cuts while keeping the hawkish Fed’s policy stance,” a trader said in an e-mail.
Mr. Powell said on Wednesday recent high inflation readings had not changed the underlying “story” of slowly easing price pressures in the US as the central bank stayed on track for three interest rate cuts this year and affirmed that solid economic growth will continue, Reuters reported.
Speaking after a policy meeting at which officials left the benchmark overnight interest rate in the 5.25%-5.5% range and held onto their outlook for three cuts in borrowing costs this year, Mr. Powell said the timing of those reductions still depends on officials becoming more secure that inflation will continue to decline towards the Fed’s 2% target even as the economy continues to outperform expectations.
Inflation reports at the beginning of the year showed price pressures remained “elevated,” in the Fed’s view, but “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road to 2%,” Mr. Powell said at a press conference.
“It’s appropriate for us to be careful,” the Fed chief said, reiterating a go-slow approach to rate cuts that has been buttressed by the economy’s ongoing strength, with officials saying they are in no rush to ease monetary policy while the economy and the job market continue to grow.
The Fed’s affirmation of its plan to ease policy boosted the peso as rate cuts in the US could be matched by the Bangko Sentral ng Pilipinas, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Mr. Powell’s comments also caused the dollar to weaken, Mr. Ricafort added.
The dollar index was little changed at 103.24 on Thursday after having slid more than 0.5% on Wednesday, Reuters reported.
For Friday, the trader said the peso could strengthen further amid “reinforced views” of monetary policy easing this year.
The trader sees the peso moving between P55.90 and P56.15 per dollar on Friday, while Mr. Ricafort expects it to range from P55.90 to P56.10. — A.M.C. Sy with Reuters
