Peso drops vs dollar on tightening bets

BW FILE PHOTO

THE PESO declined anew against the greenback on Wednesday on expectations of aggressive tightening by the US Federal Reserve and losses at the local stock market.

The local unit closed at P53.435 versus the dollar, sinking by 18.5 centavos from its P53.25 finish on Tuesday, data from the Bankers Association of the Philippines showed.

The peso opened Wednesday’s session at P53.30 against the dollar, which was also its intraday best. Its weakest showing for the day was at P53.47 against the greenback.

Dollars exchanged slipped to $1.164 billion on Wednesday from $1.167 billion on Tuesday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the local unit weakened ahead of the conclusion of the Fed’s policy review.

The first trader in an e-mail likewise said the local unit weakened due to expectations that the Fed would hike rates aggressively.

“The local currency might weaken further as the US central bank is highly anticipated to provide further statements on their aggressive aim to bring down US inflation,” the trader added.

A second trader in a Viber message said the peso was weaker after the higher-than-expected US inflation of 8.4% in May that prompted bets of a hike as large as 75 basis points (bps) from the Fed at its meeting.

“All eyes will be on the FOMC (Federal Open Market Committee),” the second trader said.

The Fed ends its two-day policy meeting on Wednesday. Investors have dramatically raised their bets and now expect the Fed to raise interest rates by 75 bps rather than 50 bps at its meeting, a swing in expectations that has fueled a violent sell-off across world markets, Reuters reported.

Expectations for a 75-bp hike at the June meeting jumped to 89% on Tuesday from only 3.9% a week ago, according to CME’s Fedwatch Tool.

Traders see the 75-bp rate increase negatively impacting the valuation of equities, particularly technology stocks, and possibly jeopardizing post-COVID-19 recovery.

Mr. Ricafort also blamed the peso’s decline on losses at the local stock market.

The benchmark Philippine Stock Exchange index dropped by 115.11 points or 2.39% to close at 6,319.42 on Wednesday, while the broader all shares index declined by 61.35 points or 1.76% to 3,409.70.

For Thursday, the first trader sees the peso moving between P53.35 and P53.55, while Mr. Ricafort expects the local unit to range from P53.30 to P53.50 versus the dollar. — T.J. Tomas with Reuters

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