Peso at 6-month high before Fed cut

THE PHILIPPINE peso appreciated to a six-month high against the dollar on Monday amid market expectations of a US Federal Reserve rate cut this week.

It closed at P55.888 a dollar, 10.7 centavos stronger than its P55.995 finish on Friday, Bankers Association of the Philippines data showed. This was the peso’s strongest close since P55.58 on March 16.

The peso opened at P55.94, which was also its weakest showing. It strengthened to as much as P55.83 against the greenback. Dollars exchanged fell to $1.2 billion from $1.497 billion on Friday.

“The peso strengthened amid persistent market views of a potential 50 basis-point policy rate cut from the US Federal Reserve this week,” a trader said in an e-mail.

The Federal Reserve will lower interest rates by 25 bps at each of the US central bank’s three remaining policy meetings in 2024, according to most economists in a Reuters poll that found only nine of 101 expected a half-percentage-point cut next week.

With inflation approaching the Fed’s 2% target and some signs of an economic slowdown, policy makers have made it clear “the time has come” to start reducing the federal fund rate, which has stayed at 5.25%-5.50% since July 2023, Reuters reported.

After the release on Friday of a mixed job report for August, interest rate futures contracts briefly priced in more than a 50% chance of a half-percentage-point cut next week, but the chances have narrowed to about one in four. Rate markets are still pricing in more than 100 basis points of cuts this year.

The peso’s rise followed the dollar’s decline on Monday, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The dollar index fell by 0.2% to 100.8 on Monday while Asian currencies rose, with the Malaysian ringgit and Korean won up by 0.8% each and leading gains, Reuters reported.

The trader expected the peso to continue strengthening on Tuesday ahead of a likely softer US retail sales report.

The trader said the peso was likely to move between P55.75 and P56 a dollar, while Mr. Ricafort expects it to trade at P55.80 to P56. — Aaron Michael C. Sy