Peso rises further before Powell speech

THE PESO continued to strengthen on Tuesday amid broad dollar weakness as markets await a speech by the US Federal Reserve chief this week, where he is expected to provide hints on the central bank’s policy easing path.

The local unit closed at P56.55 per dollar on Tuesday, appreciating by nine centavos from its P56.64 finish on Monday, Bankers Association of the Philippines data showed.

This was the peso’s strongest finish in more than four months or since its P56.53 close on April 12.

The peso opened Tuesday’s session slightly stronger than Monday’s close at P56.60 against the dollar. Its weakest showing was at P56.64, while its intraday best was at P56.51 versus the greenback.

Dollars exchanged went down to $1.55 billion on Tuesday from $1.61 billion on Monday.

The peso traded mostly sideways against the dollar on Tuesday as the market awaits Fed Chair Jerome H. Powell’s speech at the Jackson Hole Symposium this week, a trader said in a phone interview.

The peso was also supported by a generally weaker dollar due to softer US economic data recently, in addition to mostly dovish signals from Fed officials, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message

The dollar wobbled near a seven-month low on Tuesday on bets the US central bank will start cutting interest rates from next month, with traders bracing for comments from Mr. Powell on Friday, Reuters reported.

The dollar index, which measures the US currency against six rivals, was last at 101.86 after touching its lowest since Jan. 2 of 101.76 earlier on Tuesday. The index is down more than 2% in August and set for a second month in the red.

The focus this week will be Mr. Powell’s speech during an annual gathering of central bankers in Jackson Hole, but minutes of the Fed’s last meeting — due on Wednesday — will also be in the spotlight.

Some analysts say the next few weeks will likely prove decisive on whether the Fed cuts by 50-75 basis points (bps) this year or by 150 bps or more. The Jackson Hole conference is the first opportunity for the Fed to push back against the chance of a 50-bp cut at one of the year’s three remaining meetings, they add.

While labor market deterioration led to expectations for a bigger rate cut in September, data since then has been mixed with upbeat retail sales signaling that consumer demand remains resilient.

Markets are pricing in a 24.5% chance of a 50-bp cut in September, down from 50% a week ago, with a 25-bp reduction having odds of 75.5%, the CME FedWatch Tool showed. Traders are pricing in a total of 93 bps of cuts this year.

A slim majority of economists polled by Reuters expect the Fed to cut rates by 25 bps at each of the remaining three meetings.

For Wednesday, Mr. Ricafort sees the peso trading from P56.45 to P56.65 per dollar. Meanwhile, the trader said the peso may move between P56.50 and P57 until Mr. Powell’s speech. — AMCS with Reuters