Peso weakens on expectations of strong US manufacturing data

THE PESO weakened against the dollar on Monday as market players anticipate strong US data, which could cause the US Federal Reserve to continue its aggressive tightening.

The local unit closed at P58.87 per dollar on Monday, shedding 12 centavos from its P58.75 finish on Friday, Bankers Association of the Philippines data showed.

The peso opened Monday’s trading session at P58.70 against the dollar, which was also its intraday best. Its weakest showing was at P58.91 against the greenback.

Dollars exchanged fell to $633 million on Monday from $897.5 million seen on Friday.

“The peso weakened ahead of potentially upbeat US manufacturing reports overnight,” a trader said in an e-mail.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso declined even after the dollar corrected lower against major currencies over the weekend amid dovish comments from a Federal Reserve official.

San Francisco Federal Reserve President Mary Daly said on Friday that the US central bank must not “over-tighten” in its quest to fight inflation to help avoid an “unforced” economic downturn.

The market widely expects the Fed to raise rates by 75 basis points (bps) for the fourth straight time at its Nov. 1-2 meeting and to continue hiking until next year. The Fed has increased borrowing costs by 300 bps since March.

For Tuesday, Mr. Ricafort and the trader said the peso may rebound after the central bank and Finance chiefs hinted at more big rate hikes at the Bangko Sentral ng Pilipinas’ (BSP) last two meetings for the year.

BSP Governor Felipe M. Medalla on Monday said the central bank could raise interest rates by a total of at least 100 bps at its Nov. 17 and Dec. 15 meetings, depending on how hawkish the Fed will be in its own reviews on Nov. 1-2 and Dec. 13-14, Reuters reported.

Finance Secretary Benjamin E. Diokno also said on Monday that benchmark rates should be hiked by 100 bps before the year ends to help support the peso, noting this could be done via two 50-bp hikes or a 75-bp increase at the November meeting and a 25-bp hike at the December review.

If realized, this would bring the BSP’s policy rate to 5.25% — the highest since the central bank adopted the interest rate corridor framework in 2016.

The BSP has raised key rates by 225 bps so far this year to quell rising inflation and support a weakening currency that has pushed import costs up.

The trader gave a forecast range of P58.80 to P59 per dollar, while Mr. Ricafort expects a stronger P58.70 to P58.90 band. — KBT with Reuters

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