Peso expected to trade sideways ahead of US central bank review

THE PESO will likely move sideways against the dollar ahead of the possible policy easing of the US Federal Reserve.

The local unit ended the week at P51.055 versus the greenback, up from P51.11 on Thursday, as traders positioned ahead of the release of US economic growth data by selling dollars.

Week on week, the peso was a tad lower than its P51.04-per-dollar finish on July 19.

Michael L. Ricafort, Rizal Commercial Banking Corp. economist, said the peso “will move sideways to a bit stronger versus the US dollar” this week.

“The peso could (move sideways) this week as the markets anticipate the monetary-setting meeting of the (Fed),” Mr. Ricafort said.

The US central bank is widely expected to cut interest rates by at least 25 basis points during the July 30-31 meeting of its policy-setting Federal Open Market Committee.

Earlier this month, Fed chair Jerome Powell hinted on a cut in benchmark rates in a prepared speech before the US Congress, saying the central bank will “act as appropriate” to sustain expansion as “crosscurrents” such as trade tensions and concern on global growth are weighing on the economy.

“The US central bank could cut its rate by at least 25 basis points, which could support the peso,” Mr. Ricafort said.

He added that global oil prices, which settled among its four-month lows, is also supportive of the peso.

Apart from the Fed policy meeting, a foreign exchange trader said before the weekend that the US gross domestic product (GDP) growth data will be a driver for the dollar this week.

US economic growth slowed less than expected in the second quarter as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build, which could further allay concerns about the economy’s health.

But the fairly upbeat report from the US Commerce Department on Friday had some red flags for the 10-year-old economic expansion, the longest on record. Business investment contracted for the first time in more than three years and housing declined for a sixth straight quarter.

Gross domestic product increased at a 2.1% annualized rate in the second quarter, stepping down from an unrevised 3.1% pace in the January-March period. Economists polled by Reuters had forecast GDP increasing at a 1.8% rate in the second quarter. They estimate the speed at which the economy can grow over a long period without igniting inflation at between 1.7% and 2.0%.

US President Donald J. Trump downplayed the slowdown in growth and blamed the Fed for the loss of momentum.

For this week, Mr. Ricafort expects the peso to move between P50.80 and P51.20 versus the dollar, while the trader gave a P50.90-P51.20 range. — K.A.N. Vidal with Reuters