Peso weakens vs dollar ahead of Fed minutes, central bank meet


THE PESO retreated versus the greenback on Wednesday as market players expect the US Federal Reserve to remain hawkish to keep rising prices under control.

The local unit closed at P55.86 per dollar on Wednesday, depreciating by three centavos from its P55.83 finish on Tuesday, based on data from the Bankers Association of the Philippines.

The peso opened Wednesday’s session steady from Tuesday’s close at P55.83 versus the dollar. Its weakest showing was at P55.91, while its intraday best was at P55.70 against the greenback.

Dollars exchanged dropped to $918.65 million on Wednesday from $1.02 billion on Tuesday.

“The peso weakened from hawkish expectations prior to the release of Fed policy minutes overnight,” a trader said in an e-mail.

Investors are betting on the US central bank to continue raising rates aggressively as inflation remains high.

The minutes of the Fed’s July review, where it hiked rates by 75 basis points (bps) for a second straight meeting, are expected to provide hints on the direction of policy rates in the world’s largest economy.

The Fed will hold its next meeting on Sept. 20-21. Fed funds futures traders are currently pricing in a 60% chance of a 50-bp increase and a 40% probability of a 75-bp hike.

It has raised rates by 225 bps since March.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message the local unit weakened due to market concerns over local sugar supply, which could affect food prices.

President Ferdinand R. Marcos, Jr. is looking into allowing food manufacturers to directly import sugar amid tight domestic supply and high prices.

For Thursday, the trader said the peso may recover against the dollar as the Bangko Sentral ng Pilipinas (BSP) is expected to deliver a rate hike of as much as 50 bps at its policy meeting.

The Monetary Board has raised rates by a total of 125 bps since May, including a 75-bp off-cycle hike last month, as it sought to keep rising inflation in check.

Headline inflation quickened to 6.4% in July, which was a near four-year high. This was also faster than the 6.1% in June and 3.7% a year ago.

For the first seven months, inflation averaged 4.7%, higher than the 4% seen in the same period in 2021 and the central bank’s 2-4% target for the year but lower than its 5% forecast.

For Thursday, both the trader and Mr. Ricafort expect the peso to move from P55.75 to P55.95 versus the dollar. — K.B. Ta-asan

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