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Peso seen sideways ahead of Fed

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THE PESO may move sideways this week amid expectations of an interest rate cut by the US Federal Reserve and geopolitical tensions.

On Friday, the local unit ended the week at P51.91 against the greenback, stronger by two centavos compared to its Thursday finish of P51.93 per dollar.

Week on week, however, the peso depreciated from its P51.905-a-dollar finish last Sept. 6.

“The peso continued to be stronger versus the US dollar after the Trump administration said that it is looking at an interim trade deal with China that would delay or roll back some tariffs provided that China increase purchases of US agricultural products and protect US intellectual property rights,” Rizal Commercial Banking Corp. economist Michael L. Ricafort said in a text message.

Mr. Ricafort said the peso’s performance this week will be affected by several factors.

“Geopolitical risks especially the latest attacks on Saudi Arabia’s oil facilities that reduced oil production and oil exports. Offsetting factor is the possible 0.25-[basis point] Fed rate cut that could have a positive impact on the global financial markets,” he added.

With US-China trade tensions roiling markets, investors are counting on support for stocks coming from a Federal Reserve willing to keep cutting interest rates to help the US economy avoid a severe downturn.

A quarter-point rate reduction is widely expected when the Fed issues its next policy statement on Wednesday, which would be the central bank’s second such cut after lowering rates in July for the first time since 2008. That puts the greater focus on clues about how much further the Fed will go.

The central bank in July cited signs of a global slowdown, simmering US-China trade tensions and a desire to boost too-low inflation as it lowered borrowing costs.

Markets are pricing in a near 90% probability that the Fed will shave another quarter point from its current overnight lending rate of 2.00% to 2.25%, according to the CME Group’s FedWatch tool. There is a roughly 65% probability that the Fed makes at least one more quarter-point cut by the end of the year, according to FedWatch.

For this week, Mr. Ricafort said the peso is may move within the P51.70 to P52.20 band against the greenback. — LWTN with Reuters





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