THE PESO weakened against the dollar on Thursday as the market stayed on the sidelines ahead of the Bangko Sentral ng Pilipinas’ (BSP) policy decision later in the day and after the US Federal Reserve hiked borrowing rates.

The local currency ended yesterday’s session at P52.20 against the greenback, five centavos lower than the P52.15-per-dollar finish on Wednesday.

The peso opened flat at P52.15 versus the greenback, while its intraday high was at P52.05. Its worst showing was its closing rate.

Dollars traded spiked to $717.4 million from the $445.6 million recorded during the previous session.

“We saw a very strong dollar versus the peso because the expectation for the [BSP’s Monetary Board] was no rate hike,” a trader said in a phone interview on Thursday.

After financial markets closed yesterday, the BSP announced that it kept policy rates unchanged, citing firm domestic economic activity and within-target inflation.

The central bank has been allaying concerns over the inflation, saying that the higher prices of goods and services are only transitory.

The market mostly expected the BSP to keep its interest rates. According to a BusinessWorld poll, seven out of 12 economists expected the central bank to hold on to its current borrowing rates.

Meanwhile, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, also attributed the weaker performance of the peso to the interest rate hike of the US Federal Reserve announced earlier in the day.

“Dollar-peso experienced a downward pressure today from the Fed rate hike,” Mr. Asuncion said in a text message on Thursday.

The Fed decided to hike interest rates at two-day monetary policy meeting that ended Wednesday, in line with market expectations. This puts the new benchmark overnight lending rate from 1.5% to 1.75%.

This is the sixth rate hike by the Fed since the near-zero or 0.25% rate in 2015.

The US central bank also forecast at least two more hikes this year, signalling confidence in the stronger economy which could lead to further tightening, according to a report from Reuters.

In contrast, the trader said that the local market ignored the Fed’s rate decision, noting that BSP’s move “is more important.

For today, the trader expects the peso to move between P52.20 and P52.40, while Mr. Asuncion gave a slightly wider range of P52.10 to P52.40.

Meanwhile, the Malaysian ringgit led gains as Asian currencies rose against the dollar after the Fed’s rate hike decision came in as expected, although resurgent fears of a global trade war weighed on positive sentiment. — Karl Angelo N. Vidal with Reuters