Peso nears all-time low as markets expect Fed to adopt hawkish tone
THE PESO sank further against the dollar on Wednesday, touching its record low of P59 intraday, on expectations of hawkish statements from the US Federal Reserve overnight.
The local unit closed at P58.99 per dollar on Wednesday, weakening by 11.9 centavos from its P58.871 finish on Tuesday, Bankers Association of the Philippines data showed.
This was the peso’s weakest finish since its P59 close on Nov. 26, which is its all-time low. It has yet to breach this record, which was first set in October 2022.
Year to date, the peso has depreciated by P3.62 or 6.14% from its end-2023 finish of P55.37 a dollar.
The peso traded within a tight range, opening the session at P58.89 against the dollar. It climbed to an intraday high of P58.88, while its worst showing was at P59 versus the greenback.
Dollars exchanged dropped to $884.55 million on Wednesday from $1.43 billion on Tuesday.
“The peso ended [weaker] on speculation that the Fed will have a hawkish path, meaning they will adopt a cautious stance in cutting interest rates,” a trader said by phone.
The local unit depreciated as players awaited signals from the US central bank, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.
For Thursday, the trader said the peso could continue to test the P59 level if the Fed adopts a hawkish tone but could strengthen to P58.50 if it makes dovish statements.
For his part, Mr. Ricafort expects the local unit to trade from P58.85 to P59 on Thursday.
The US dollar held firm on Wednesday before the Federal Reserve policy meeting later in the session, which was expected to deliver a so-called hawkish cut, trimming rates but suggesting fewer cuts may lie ahead, Reuters reported.
Focus will fall on how much further Fed officials think they will reduce rates next year, while markets have been fully priced in a 25 basis points (bps) cut for weeks. Analysts recalled that the assumption that the Fed would reduce its level of 2025 easing had propped up the dollar recently.
“We foresee a hawkish shift in the dot plot, consistent with the movement in market expectations since the last update in September,” said David Doyle, head of economics at Macquarie.
The US dollar index, which measures the greenback against six rivals, was up 0.05% at 106.98 after hitting its highest since Nov. 26 at 107.18 on Monday.
“We think they will pause (cutting rates in January),” said Padhraic Garvey, regional head of research, Americas at ING. “It’s unlikely they telegraph that intention explicitly.”
“We might find the dollar weakens if they ‘only’ revise (interest rate forecasts) down to two cuts in 2025,” said Matt Simpson, a senior market analyst at City Index.
The current dot plot projects the Fed to deliver four 25-bp cuts next year.
Against the yen, the greenback was down 0.07% at 152.16, having given up some of its recent gains in the previous session as US Treasury yields fell. — Aaron Michael C. Sy with Reuters
