Peso climbs vs dollar on Fed rate bets

THE PESO appreciated on Tuesday as the dollar weakened amid expectations that the US Federal Reserve won’t raise interest rates by a full percentage point at its July 26-27 meeting despite rising inflation.

The local unit closed at P56.255 per dollar on Tuesday, up by 9.5 centavos from its P56.35 finish on Monday, based on data from the Bankers Association of the Philippines.

The peso opened Tuesday’s session at P56.35 versus the dollar. Its weakest showing was at P56.37, while its intraday best was at P56.25 against the greenback.

Dollars exchanged rose to $663.05 million on Tuesday from $561.75 million on Monday.

“The peso appreciated as the dollar’s appeal waned following reports that the US central bank might push for a softer 75-bp (basis point) policy rate hike instead of an aggressive 100-bp adjustment,” a trader said in an e-mail.

Fed officials said on Friday they would support another 75-bp interest rate increase at their July meeting, though high inflation could still prompt larger increases than anticipated later in the year, Reuters reported.

“It probably doesn’t make too much difference to do 100 basis points here and less in the other three meetings (in 2022) or to do 75 basis points here and slightly more in the remaining three meetings of the year,” St. Louis Fed President James Bullard said.

Atlanta Fed President Raphael Bostic cautioned against the central bank moving “too dramatically” because it could undermine the strong hiring and other positive trends still seen in the economy.

Both Mr. Bostic and Mr. Bullard reiterated the Fed’s firm commitment to raising interest rates as high as needed to control inflation.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso rose amid gains in the local stock market. The Philippine Stock Exchange index went up by 17.46 points or 0.27% to close at 6,286.24 on Tuesday, while the broader all shares index increased by 11.30 points or 0.33% to 3,381.36.

“The peso also stronger after the government kept the COVID alert level system and plans to have new alert classification by mid-August 2022,” Mr. Ricafort added.

For Wednesday, the trader said the peso may weaken anew against the dollar on potentially hawkish remarks from other Fed officials overnight.

The trader expects the peso to move between P56.15 and P56.35 against the dollar, while Mr. Ricafort gave a forecast range of P56.10 to P56.35. — Keisha B. Ta-asan with Reuters