Peso may move sideways as market activity slows down

THE PESO may continue to consolidate at the P58 level on Friday as trading activity winds down amid the holidays, with fiscal concerns and the future policy paths of both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve remaining in focus.

On Tuesday, the local unit closed at P58.85 per dollar, declining by 12 centavos from its P58.73 finish on Monday, Bankers Association of the Philippines data showed.

Philippine financial markets were closed on Dec. 24-25 for the Christmas holidays.

Analysts said the peso may be range-bound when trading resumes on Friday.

“It may continue to trade below the P59 handle, maybe due to lack of movement because of the holiday season,” a trader said in a phone interview, expecting the peso to move between P58.60 and P58.90 per dollar on Friday.

The local currency has closed at the P58 level for the last six trading days. It has been moving at the P58 to P59 range since October, even logging a fresh record low of P59.22 on Dec. 9.

The peso has been weak even as year-end remittance inflows have provided some support to the local unit, Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said in a Viber message.

He said market sentiment, fiscal cues, and monetary policy expectations will continue to drive the peso’s movements in the last trading days of the year. He sees the local unit ending 2025 at P58.90 per dollar.

President Ferdinand R. Marcos, Jr. will sign the 2026 General Appropriations Act (GAA) on Jan. 5, 2026 as the administration will still need to review the spending plan, Executive Secretary Ralph G. Recto said on Tuesday.

Mr. Marcos was initially expected to sign the spending plan on Dec. 29, but there were delays in the bicameral conference committee’s proceedings as lawmakers needed more time to scrutinize the national budget for red flags.

The proposed 2026 GAA is facing heightened scrutiny after claims surfaced that this year’s national budget included billions of pesos in unprogrammed allocations.

Meanwhile, at its Dec. 11 meeting, the BSP slashed benchmark rates by 25 basis points (bps) for a fifth straight time to bring the policy rate to 4.5%. This brought total cuts since August 2024 to 200 bps.

BSP Governor Eli M. Remolona, Jr. has left the door open to a final 25-bp reduction next year to support the economy if needed as a wide-ranging corruption scandal involving the use of public funds for allegedly anomalous infrastructure projects has affected domestic demand.

For its part, the Fed this month cut its benchmark overnight interest rate by another 25 bps to the 3.5%-3.75% range, but signaled borrowing costs were unlikely to fall in the near term as policymakers await clarity on the direction of the labor market and inflation, Reuters reported.

Investors wagered the US Federal Reserve would have room to cut rates further next year even as some of its peers looked set to hike as a solid US gross domestic product (GDP) reading released on Tuesday failed to move the dial on the rate outlook.

The US economy grew at its fastest pace in two years in the third quarter, fueled by robust consumer spending and a sharp rebound in exports, though momentum appears to have faded amid the rising cost of living and recent government shutdown.

Gross domestic product increased at a 4.3% annualized rate last quarter, the fastest pace since the third quarter of 2023, the Commerce Department’s Bureau of Economic Analysis said in its initial estimate of third-quarter GDP. Economists polled by Reuters had forecast GDP would rise at a 3.3% pace. The economy grew at a 3.8% pace in the second quarter.

The report bolstered views that the Fed will hold off on cutting rates at its meeting in late January, with the odds currently at 87%, according to LSEG estimates. US rate futures now expect the US central bank’s next policy easing will occur in June, with two quarter-percentage-point cuts priced in for 2026. — K.K. Chan with Reuters