Peso rises to six-month high after Fed rate cut

THE PESO strengthened to a six-month high against the dollar on Thursday after the US Federal Reserve began its easing cycle with a 50-basis-point (bp) rate cut and signaled more reductions this year.

The local unit closed at P55.61 per dollar on Thursday, strengthening by 11 centavos from its P55.72 finish on Wednesday, Bankers Association of the Philippines data showed.

This was its best close in more than six months or since it ended at P55.58-a-dollar on March 18.

Year to date, this was still 24 centavos below the peso’s end-2023 close of P55.37.

The peso opened Thursday’s session weaker at P55.88 against the dollar. Its dropped to as low as P55.92, while its intraday best was at P55.56 versus the greenback.

Dollars traded surged to $1.99 billion on Thursday from $1.23 billion on Wednesday.

The peso strengthened against the dollar “as the market reacted to the 50-bp rate cut by the Federal Reserve,” a trader said by phone.

The local unit was supported by signals of at least 50 bps more in rate cuts by the Fed for the rest of the year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort added in a Viber message.

For Friday, the trader sees the peso moving between P55.50 and P55.90 per dollar, while Mr. Ricafort expects it to range from P55.50 to P55.70.

The US dollar edged lower on Thursday after a larger than usual interest rate cut from the US Federal Reserve that had been priced in by markets, Reuters reported.

The dollar index, which measures the greenback against a basket of six peers, was down 0.15% to 100.71, not far from the level before the Fed decision. It slid to an over one-year low of 100.21 in the previous session.

Some analysts expect the greenback will fall next year as the Fed keeps cutting rates.

Against the yen, the dollar gained as much as 1.2% to hit an intraday high of 143.95 in the Asian session. It last traded 0.1% higher at 142.15 yen.

The US central bank on Wednesday kicked off an anticipated series of interest rate cuts with a larger-than-usual half-percentage-point reduction that Federal Reserve Chair Jerome H. Powell said was meant to show policy makers’ commitment to sustaining a low unemployment rate now that inflation has eased.

“We made a good strong start and I am very pleased that we did,” Mr. Powell said at a press conference after the Fed, noting its increased confidence that the country’s bout with high inflation was over, reduced its benchmark policy rate by 50 bps to the 4.75%-5% range. “The logic of this both from an economic standpoint and from a risk management standpoint was clear.”

In addition to approving the half-percentage-point cut on Wednesday, Fed policy makers projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year, and half of a percentage point in 2026, though they cautioned that the outlook that far into the future is necessarily uncertain.

The Fed had kept its policy rate in the 5.25%-5.5% range since last July, when it ended an 18-month rate-hike campaign that was meant to control a surge in inflation, which soared in 2022 to a 40-year high.

Rate futures traders moved to price in even more easing than projected by the Fed, with the policy rate now expected to be in the 4%-4.25% range by end of this year. — A.M.C. Sy with Reuters