THE PESO weakened versus the dollar on Thursday as the US Federal Reserve made hawkish remarks despite expectations of a pause after its interest rate hike.
The local currency closed at P53.10 against the greenback yesterday, losing three centavos from the P53.07-per-dollar close on Wednesday.
It depreciated at the session’s start, opening at P53.15 versus the dollar. It dropped to as low as P53.25 yesterday. Meanwhile, its intraday high was logged at P53.09 against the greenback.
Total volume grew slightly, with dollars traded amounting to $685.92 million on Thursday from $658.85 million in the previous session.
Traders interviewed said the market took into account the unexpected hawkish stance by the Fed at the close of its two-day policy meeting, causing a sell-off among Asian and emerging-market currencies.
“The peso weakened after the rather hawkish remarks made by US Federal Reserve chairman Jerome Powell following the widely expected 25-basis-point policy rate hike [on Thursday[, contrary to market expectations of dovish signals from the Fed,” an analyst said in an email.
“The local currency might appreciate on likely weaker US economic data on inflation and personal consumption. Exchange rates are likely to move between P53.00 and P53.20 range,” the analyst added.
After weeks of market volatility and calls by President Donald Trump for the Federal Reserve to stop raising interest rates, the US central bank instead did it again, and stuck by a plan to keep withdrawing support from an economy it views as strong.
Wednesday’s rate increase, the fourth of the year, pushed the central bank’s key overnight lending rate to a range of 2.25% to 2.5%.
In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy’s momentum.
Another trader said despite the initial sell-off due to the hawkish tone, markets are considering that the remarks were actually relatively dovish, which helped the peso gain before the market closed.
“The spike in dollar-peso is more or less the reflection of less dovish, and expected rate hike overnight. Market was hoping for a more dovish stance, looking for a neutral statement, but the Fed said there might be possible further rate hikes, like cautious rate hikes in 2019,” a trader said in a phone interview.
“In the afternoon…it reversed, market is digesting the rate hike is still dovish,” the trader added. — E.J.C. Tubayan with Reuters