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THE PESO sank to a 10-week low versus the dollar on Tuesday amid cautious signals from US Federal Reserve officials and as tensions in the Middle East continued to escalate.

The local unit closed at P57.88 per dollar on Tuesday, weakening by 29 centavos from its P57.59 finish on Monday, Bankers Association of the Philippines data showed.

This was the peso’s weakest close in more than 10 weeks or since its P57.90-per-dollar finish on Aug. 9.

The peso opened Tuesday’s session weaker at P57.69 against the dollar, which was already its intraday best. Meanwhile, it dropped to as low as P57.92 versus the greenback.

Dollars exchanged went down to $1.3 billion on Tuesday from $1.34 billion on Monday.

“The peso weakened anew due to growing market expectations that the Fed might consider holding policy rates steady in its November meeting in order to emphasize the non-partisan nature of its monetary policy decisions,” the first trader said in an e-mail.

Signals from Fed officials on a more gradual pace of rate cuts supported the dollar, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The dollar-peso closed higher fueled by market risk aversion, which favored the dollar, amid escalating tensions in the Middle East,” the second trader added in a phone interview.

For Wednesday, the first trader sees the peso moving between P57.60 and P58.10 per dollar, while Mr. Ricafort expects it to range from P57.75 to P57.95. The second trader said the peso could end at around P57.75 to P57.80.

The US dollar clung to a 2-1/2 month high on Tuesday on expectations the Federal Reserve will take a measured approach to interest rate cuts, while a too-close-to-call US election campaign kept investors on edge, Reuters reported.

The dollar’s strength, boosted by rising Treasury yields, kept pressure on the yen, euro and sterling, a theme that has been building over the past few weeks as traders scale back their bets on rapid US rate cuts.

Four Fed policy makers expressed support on Monday for further rate cuts, but appeared to differ on how fast or far they believe any cuts should go.

Markets are pricing in an 87% chance of the Fed cutting rates by 25 basis points (bp) next month, versus a 50% chance a month earlier, when investors saw an equal likelihood of a larger 50-bp cut, the CME FedWatch tool showed.

Traders are anticipating another 40 bps of easing overall for the rest of the year.

The dollar index, which measures the US currency versus six others, was last at 103.87, having touched 104.02 on Monday, its highest since Aug. 1. The index is up more than 3% so far this month.

With the US election just two weeks away, the rising odds of former President Donald J. Trump winning are boosting the dollar, since his proposed tariff and tax policies are seen as likely to keep US interest rates high. — A.M.C. Sy with Reuters