Peso drops vs dollar on Powell comments

THE PESO weakened against the dollar on Tuesday following cautious comments from the US Federal Reserve chief and amid the conflict in the Middle East.

The local unit closed at P56.145 per dollar on Tuesday, declining by 11.5 centavos from its P56.03 finish on Monday, Bankers Association of the Philippines data showed.

The peso opened Tuesday’s session weaker at P56.20 against the dollar. Its intraday best was at P56.09, while it dropped to as low as P56.32 versus the greenback.

Dollars exchanged surged to $2.22 billion on Tuesday from $1.29 billion on Monday.

The peso dropped as the dollar was stronger after cautious remarks from Fed Chair Jerome H. Powell and amid the escalating conflict in the Middle East, a trader said by phone.

Mr. Powell’s comments were in contrast to the Bangko Sentral ng Pilipinas’ (BSP) chief’s dovish tone, which put pressure on the peso, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US dollar rallied broadly on Tuesday after Mr. Powell pushed back against bets on more supersized interest rate cuts, Reuters reported.

Mr. Powell adopted a more hawkish tone in a speech at a conference in Tennessee, saying the world’s biggest central bank would likely stick with quarter-percentage-point interest rate cuts moving forward.

“This is not a committee that feels like it is in a hurry to cut rates quickly,” he said.

Traders remain certain that the Fed will cut again at the next policy setting meeting in November, but slashed expectations for a 50-basis-point (bp) reduction to 35.4% from 53.3% a day earlier, according to CME Group’s FedWatch Tool.

The Fed kicked off its easing cycle with a larger-than-expected half-point reduction last month, bringing its target rate to the 4.75%-5% range.

The dollar index rose 0.1% to 100.87 as of 0403 GMT, after pushing 0.3% higher on Monday, when it posted a third successive monthly decline, with a near 1% fall in September.

The dollar was up 0.3% at 144.01 yen, after whipsawing from as high as 146.495 yen on Friday to as low as 141.65 yen on Monday.

Meanwhile, BSP Governor Eli M. Remolona, Jr. last week said the Monetary Board could slash benchmark interest rates by 50 bps more this year via two 25-bp cuts each at its next two meetings scheduled for Oct. 16 and Dec. 19.

The BSP kicked off its easing cycle in August, cutting its policy rate by 25 bps to 6.25% from the over 17-year high of 6.5%.

For Wednesday, the trader sees the peso moving between P56 and P56.50 per dollar, while Mr. Ricafort expects it to range from P56.05 to P56.25 — A.M.C. Sy with Reuters