Peso to remain rangebound after Trump win, Fed rate cut

THE PESO could move sideways against the dollar this week and stay at the P58 level following the result of the US elections and the US Federal Reserve’s latest rate cut.

The local unit closed at P58.26 per dollar on Friday, strengthening by 47 centavos from its P58.73 finish on Thursday, Bankers Association of the Philippines data showed.

Week on week, however, the peso declined by 16 centavos from its P58.10 finish on Oct. 31.

“The dollar-peso ended lower [on Friday] mainly due to the 25-basis-point (bp) cut from the Fed,” a trader said by phone.

The Fed’s rate cut led to a generally weaker dollar and lower US Treasury yields on Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For this week, the trader said the peso could consolidate as the market continues to digest the US 2024 presidential election results and the Fed’s rate decision.

Mr. Ricafort added that the peso’s movement could also be affected by the release of October US producer and consumer inflation data this week.

Both Mr. Ricafort and the trader see the peso moving between P58 and P58.50 versus the dollar this week.

The Federal Reserve cut interest rates by a quarter of a percentage point on Thursday as its policy makers began taking stock of what could become a more complex economic landscape when President-elect Donald J. Trump takes office next year, Reuters reported.

Fed Chair Jerome H. Powell said the results of Tuesday’s presidential election, which paved the way for a US chief executive who has pledged widespread deportation of immigrants, broad-based tariffs, and tax cuts, would have no “near-term” impact on US monetary policy.

Mr. Powell said the Fed will continue assessing data to determine the “pace and destination” of interest rates as officials reset currently tight monetary policy to account for inflation that has slowed markedly in the past year and is nearing the US central bank’s 2% target.

But as the new administration’s proposals take shape, the Fed chief said the central bank would begin estimating the impact on its twin goals of stable inflation and maximum employment.

“It’s a process that takes some time,” said Mr. Powell, who spoke in a press conference following the Fed’s decision to reduce its benchmark overnight interest rate to the 4.5%-4.75% range. “It’s all of the policy changes that are happening. What’s the net effect? The overall effect on the economy at a given time? That’s a process… we go through all the time with every administration.”

The first years of President Joseph R. Biden’s administration, for example, saw passage of major infrastructure and other spending bills that added to growth but, many economists feel, also contributed to the eventual breakout of inflation that the Fed had to suppress with rapid rate hikes in 2022 and 2023.

Inflation has since fallen and Fed policy rates are coming down as well, a process Mr. Powell said is still expected to lead over time to a more neutral rate of interest that neither stimulates nor restrains the economy.

Yet the exact destination remains unknown, and may become even harder to pin down if fiscal and tax policies change as rapidly as Mr. Trump has pledged, particularly given the political tailwind of Republican control of the US Senate and possibly the House of Representatives.

Mr. Powell, who was appointed by Mr. Trump and then eventually clashed with him during the Republican president’s first term, will now oversee monetary policy during those first critical months of the new administration.

Mr. Trump indicated over the summer, and a CNN report on Thursday reaffirmed, that he would let Mr. Powell continue as Fed chief until the end of his current four-year term in May of 2026 — and Mr. Powell said bluntly on Thursday that he would not resign if asked. The president, he said, had no authority under law to remove the head of the Fed, a position confirmed by the Senate, over a policy disagreement. — A.M.C. Sy with Reuters