Peso slips as market awaits Fed rate cut

THE PESO inched down against the dollar on Wednesday due to stronger-than-expected August US retail sales data and ahead of the US Federal Reserve’s policy announcement.

The local unit closed at P55.72 per dollar on Wednesday, weakening by 2.5 centavos from its P55.695 finish on Tuesday, Bankers Association of the Philippines data showed.

The peso opened Wednesday’s session weaker at P55.80 against the dollar. Its worst showing was at P55.865, while its intraday best was at P55.715 versus the greenback.

Dollars exchanged inched down to $1.23 billion on Wednesday from $1.26 billion on Tuesday.

The peso was dragged down by a generally stronger dollar on Wednesday following the US retail sales report, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The dollar-peso closed higher mainly due to higher US retail sales last night amid expectations of a 50-basis-point (bp) rate cut by the Fed, helping the dollar recover from the low yesterday,” a trader said by phone on Wednesday.

For Thursday, the peso will move depending on the Fed’s decision, the trader said.

The trader sees the peso moving between P55.50 and P56 per dollar on Thursday, while Mr. Ricafort expects it to range from P55.60 to P55.80 against the greenback.

The dollar shed some of its overnight gains against the yen on Wednesday, as investors made last-minute tweaks to positions ahead of a policy meeting expected to initiate a US easing cycle, Reuters reported.

The Federal Reserve was expected to make its first interest rate cut in more than four years at 1800 GMT, with markets pricing a 61% probability of a 50-bp cut.

The dollar has fallen along with US yields since July and at $1.1129 per euro is not far from the year’s low at $1.1201 in anticipation of US easing at a clip, with more than 100 basis points of rate cuts priced in by Christmas.

The yen, up more than 12% since July, has been surging because the Bank of Japan — which sets policy on Friday — has been hiking rates at the same time as the Fed prepares to cut.

It rose about 0.4% to 141.80 per dollar on Wednesday, recouping about a third of an overnight drop. The yen was down 0.3% to 157.84 per euro.

Traders say the Fed’s tone as well as the size of the rate cut will drive the reaction in the foreign exchange market.

US retail sales unexpectedly rose 0.1% in August, data showed overnight, against forecasts for a 0.2% contraction and the Atlanta Fed’s closely followed GDPNow estimate was raised to 3% from 2.5%, supporting perhaps a case for a smaller Fed cut. — A.M.C. Sy with Reuters