THE PESO may strengthen this week on expectations of another rate cut from the US Federal Reserve and amid the ongoing US-China and Brexit talks.

The local unit finished trading at P51.135 against the greenback on Friday, stronger by 10 centavos compared to the P51.24-a-dollar close on Thursday.

It also appreciated by 16 centavos week-on-week against its P51.295 finish on Oct. 18.

Dollars traded on Friday rose to $1.396 billion from $1.225 billion on Thursday.

Traders attributed the local unit’s gains to the fresh reserve requirement ratio (RRR) cut announced Thursday as well as the Brexit blues which worked well for emerging market currencies.

“The market seemed to also factor in the RRR cut by the BSP (Bangko Sentral ng Pilipinas) as it will be beneficial in the medium term for Philippine growth and the financial markets,” a trader said in a phone call Friday.

“There is a slight risk-on sentiment overnight given the uncertainty of Brexit talk. The day also saw emerging market currencies including those in Southeast Asian up against the dollar,” another trader said in a phone call.

The BSP cut banks’ RRR for the fourth time this year, with the latest reduction to take effect in December.

In a statement on Thursday, the BSP said its policy-setting Monetary Board (MB) decided to slash the RRR of universal, commercial and thrift banks by another 100 basis points (bp), bringing total reductions to their reserve ratios for this year to 400 bps.

The MB said the cut will also apply to the reserve ratio of non-bank financial institutions with quasi-banking functions.

Meanwhile, the European Union settled on Friday to grant London’s request for a Brexit deadline extension but set no new departure date.

For this week, the first trader said the market will be monitoring the Fed meeting.

The other trader said new developments related to the Brexit and the US-China talks will guide the peso’s movement this week.

“The Brexit talks are still on the table as well as the US-China trade negotiations,” he said.

The first trader sees the peso moving within the P50.70-51.40 range against the dollar, while the second trader expects the local unit to play around the P51.00-51.40 band. — LWTN with Reuters

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