Peso plunges against the dollar as Fed makes ‘insurance’ rate cut

THE PESO declined against the dollar on Thursday after the US Federal Reserve cut benchmark rates.

The local unit closed yesterday’s session at P51.20 versus the greenback, plunging by 31 centavos from its P50.89-per-dollar finish on Wednesday.

The peso traded weaker the whole day, opening the session at its best showing of P51.01 versus the greenback. Meanwhile, its intraday low stood at P51.23 against the US unit.

Trading volume climbed to $984.36 million from the $885.57 million that changed hands the previous day.

Traders attributed the depreciation of the peso to the pronouncements of Fed chair Jerome Powell following the two-day meeting of the central bank’s Federal Open Market Committee on July 30-31.

As widely expected by the market, the Fed decided to trim its policy rates by 25 basis points, its first in a decade. However, Mr. Powell said in a news conference following the meeting that the central bank had no plans of adjusting the rates further, as the latest cut was only done to adjust to economic conditions.

Previously, Mr. Powell hinted that the Fed will “act as appropriate” to sustain expansion as “crosscurrents” are weighing on the economy.

“The peso weakened after (Mr.) Powell emphasized that the 25-basis point US policy rate reduction was an ‘insurance cut’ against downside risks to the US economy and not as a precedent for further rate cuts as some market participants had expected,” a trader said in an e-mail.

Another trader said the market was “disappointed” since the July cut was seen as a start of the central bank’s easing cycle.

“The market was more aggressive than the Fed, and this was what highlighted in the meeting. That’s the reason why we saw a turnaround in the dollar against other currencies. Even dollar-peso mirrored that move,” the second trader added.

For today, the first trader expects the peso to move between P51.10 and P51.30, while the other gave a P51.10-P51.30 range.

Other Asian currencies weakened against the dollar on Thursday as the US Federal Reserve doused market expectations of a lengthy easing cycle after it delivered its first rate cut in over a decade.

The Indonesian rupiah was one of the hardest hit in the region, easing 0.5% to 14,085 per dollar.

“Against the dovish stances of other central banks, the US dollar has become a de facto strong currency on monetary policy divergences,” DBS Bank said in a note.

The Chinese yuan lost as much as 0.5% to its lowest level in six weeks. The country’s central bank kept its main policy rates on hold on Thursday, opting not to follow the Fed cut. — Karl Angelo N. Vidal with Reuters