Peso advances versus dollar amid caution

THE PESO rose against the dollar on Tuesday amid market caution and profit taking ahead of the US inflation data release for August and the scheduled presidential debate.

It closed at P56.385 a dollar, 13.5 centavos stronger than its P56.52 finish on Monday, Bankers Association of the Philippines data showed.

The peso opened at P56.45 against the dollar. It strengthened to as much as P56.35 and weakened to as low as P56.59 against the greenback.

Dollars exchanged rose to $1.57 billion from $1.22 billion on Monday.

The dollar weakened amid some profit-taking ahead of US inflation data for August, a trader said by phone.

The trader also said there was some market caution due to the upcoming US presidential debate overnight.

A mixed labor report on Friday failed to make a clear-cut case on whether the Federal Reserve would deliver a regular 25-basis-point (bp) rate cut or an outsized 50 bps one at its Sept. 17-18 policy meeting. Traders were waiting for Wednesday’s US consumer price index report.

Markets are fully pricing in a 25-bp cut next week, with a 50-bp cut priced in at 30%, down from as high as 50% on Friday, the CME FedWatch tool showed.

For 2024, traders expect 110 bps of easing, up from about 100 bps from the remaining three meetings.

The dollar index, which measures the US currency against six rivals, was at 101.59, down 0.06%.

Investor focus will be on the highly anticipated televised US presidential debate later on Tuesday that could weigh heavily on the November election.

Investors expect the greenback to rise in the event of a Donald Trump victory, as tariffs would prop up the currency, and higher fiscal spending would boost interest rates.

Meanwhile, Wednesday’s inflation report is expected to show inflation easing to 2.6%, while on a monthly basis, it is expected to remain unchanged at 0.2%.

Lower crude oil prices also supported the peso, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Brent futures were up 1.1% or 78 cents to settle at $71.84 a barrel, while US West Texas Intermediate (WTI) crude gained 1.5% or $1.04 to $68.71.

On Friday, Brent and US diesel futures closed at their lowest prices since December 2021. WTI closed at its lowest price since June 2023 and US gasoline futures closed at their lowest level since February 2021.

The trader expects the peso to trade between P56.10 and P56.60 a dollar, while Mr. Ricafort sees it moving from P56.30 to P56.50. — Aaron Michael C. Sy