Peso may be range-bound as market eyes Fed, BSP reviews

THE PESO is expected to move sideways against the dollar this week ahead of expected rate cuts by both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

On Friday, the local unit closed at P58.935 per dollar, rising by 8.7 centavos from its P59.022 finish on Thursday, data from the Bankers Association of the Philippines showed.

Week on week, however, the peso fell by 29 centavos from its P58.645 close on Nov. 28.

“The dollar-peso initially rallied following release of lower-than-expected inflation rate, supporting bets of a BSP rate cut next week. But profit taking pulled the pair ahead of US data tonight,” a trader said in a phone interview on Friday.

Headline inflation slowed to 1.5% in November from 1.7% the month prior and 2.5% in the same month in 2024, the Philippine Statistics Authority reported on Friday.

This was a tad below the 1.6% median estimate in a BusinessWorld poll of analysts and was within the BSP’s 1.1-1.9% forecast for the month.

The November print brought the 11-month average to 1.6%, lower than the central bank’s 1.7% full-year forecast and 2-4% annual target.

Analysts said the data raise the chances of another cut from the BSP at its policy meeting on Thursday (Dec. 11). A BusinessWorld poll showed that 14 out of 15 analysts expect the Monetary Board to trim the target reverse repurchase rate by 25 basis points (bps) for a fifth meeting in a row this week. This would bring the policy rate to 4.5%, which would be a fresh over three-year low.

On the other hand, one analyst sees an outsized 50-bp reduction at Thursday’s meeting.

BSP Governor Eli M. Remolona, Jr. said last week that likely below-target economic growth this year due to the impact of a widening corruption scandal on investor sentiment has raised the chances of another cut at their final meeting for the year.

Meanwhile, the US personal consumption expenditures (PCE) price index increased 0.3% in September, matching August’s gain, Reuters reported. In the 12 months through September, it advanced 2.8%. That was the largest year-on-year advance since April 2024 and followed a 2.7% rise in August.

But prices for services rose by a marginal 0.2%, keeping underlying inflation under control. Excluding the volatile food and energy components, the PCE price index gained 0.2% after rising by the same margin in August.

In the 12 months through September, the so-called core inflation index increased 2.8% after rising by 2.9% for two straight months.

The US central bank tracks the PCE price measures for its 2% inflation target. Economists said businesses were not done passing on higher costs from import duties to consumers, citing elevated price readings in recent Institute for Supply Management and S&P Global surveys.

Some economists said softer consumer spending and cooler core PCE inflation would allow the Fed to cut interest rates at its Dec. 9-10 meeting. Financial markets put a roughly 87.2% chance on a 25-bp rate cut, CME Group’s FedWatch tool showed.

The peso was also supported by the seasonal increase in remittances needed to fuel holiday spending, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For this week, the trader said the local unit could remain range-bound before the policy meetings of the Fed and the BSP.

The trader sees the peso moving between P58.70 and P59.10 per dollar this week, while Mr. Ricafort expects it to range from P58.60 to P59.10. — Aaron Michael C. Sy with Reuters