THE PESO strengthened to hit a two-week high on Thursday, as the dollar weakened after the US central bank sent dovish signals following its first policy meeting of the year, dampening sentiment on the greenback.
The local unit ended the session at P52.12 versus the greenback, 22.5 centavos stronger than the P52.345-per-dollar finish recorded on Wednesday.
This was the peso’s best performance in more than two weeks or since it closed at P52.03 against the dollar on Jan. 15.
The peso traded stronger the whole day, opening the session at its worst showing of P52.25 versus the greenback. Meanwhile, its intraday high stood at P52.09.
Trading volume soared to $1.014 billion from the $933.32 million that exchanged hands the previous day.
Traders interviewed yesterday attributed the peso’s climb to dollar weakness following the policy meeting of the US Federal Reserve.
“The local currency strengthened further after the US Federal Reserve opted not to raise interest rates during its January policy meeting,” a trader said in an e-mail yesterday.
As expected, the Fed kept its borrowing costs steady during its Jan. 29-30 meeting and indicated that it will not increase its benchmark rates anytime soon.
The central bank’s dovish rhetoric was a turnaround from its previous pronouncements that it will tighten its interest rates by two times this year.
“The dollar weakened because of Fed Chair [Jerome] Powell’s dovish comments. He said something about the case for rate hikes having weakened,” another trader said in a phone interview, adding that the dollar index moved near its support level overnight.
The Federal Reserve’s dovish turn supported Asian currencies on Thursday and sent the dollar lower as the move improved sentiment across the region which had been hit hard by the US central bank’s tightening cycle last year.
The dollar index, a gauge of its value versus six major peers, had been trading lower ahead of the meeting and for much of the week. Following the Fed meeting, it fell to a three-week low of 95.246.
Analysts have turned bearish on the dollar, which outperformed last year thanks to rates expectations and a robust US economy, however the trade war and pressure on global growth have threatened to dent domestic output.
For today, both traders expect the peso to trade between P52 and P52.20.
“We’re seeing momentum still for the dollar to weaken. The peso may push to open the session at P52 [today], provided that there’s no significant change overnight in the dollar,” the second trader noted. — K.A.N. Vidal with Reuters