THE PESO weakened against the dollar on Wednesday as investors expect the US Federal Reserve to hike its interest rates, which is seen to support the greenback.

The local currency ended yesterday’s trading at P52.15 against the dollar, seven centavos weaker than the P52.08-per-greenback finish on Tuesday.

The peso traded sideways the whole day, opening the session stronger at P52.05 versus the dollar. Its intraday high stood at P52.03, while its worst showing for the day was its closing level.

Dollars traded slid slightly to $445.6 million yesterday from the $456.2 million logged the previous day.

“The peso depreciated near the close today as investors started to position towards the dollar in anticipation of a likely hawkish rate decision from the Federal Reserve,” a trader said in an e-mail on Wednesday.

The Fed’s policy-setting Federal Open Market Committee (FOMC) is expected to raise interest rates this year, according to a Reuters report. Market players are also anticipating signals about more rate hikes in response to the tax cuts and government spending.

The central bank said late last year that there would be three quarter-of-a-point hikes this year, but some policy makers hinted that there could be more.

“[The peso] is weaker mainly because of the anticipated Fed rate increase and how monetary policy might become more hawkish during [Fed Chair Jerome H. Powell’s] term,” Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said in a text message.

He added that the FOMC will likely stick to three rate hikes for this year. “For this year, it’s three times including this one.”

Meanwhile, investors are also on the lookout should the Bangko Sentral ng Pilipinas (BSP) also hike its interest rates during the Monetary Board meeting today.

In a BusinessWorld poll of 12 economists, seven see the local central bank holding its current borrowing rates.

For today, the trader expects the peso to move between P52 and P52.30, while Mr. Asuncion gave a slimmer range of P52.10 to P52.30.

“The peso is expected to weaken [today] on a rate hike outlook from the Fed. However, the peso might find strength should the BSP decided to rate policy rates tomorrow afternoon that would likewise prompt investors to take profits from the dollar,” the trader noted.

Asian currencies moved in a tight range against a firmer dollar on Wednesday ahead of a slew of economic indicators, the foremost being the outcome of a US Federal Open Market Committee meeting later in the day.

The greenback retained gains against a basket of currencies as traders look to whether the Fed will indicate faster monetary tightening this year, while the first rate increase of 2018 is almost unanimously expected. — Karl Angelo N. Vidal with Reuters

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