Peso extends climb on bets of big Fed cut

THE PESO strengthened to a fresh six-month high against the dollar on Tuesday amid growing bets of a 50-basis-point (bp) rate cut by the US Federal Reserve this week.

The local unit closed at P55.695 per dollar on Tuesday, appreciating by 19.3 centavos from its P55.888 finish on Monday, Bankers Association of the Philippines data showed.

This was the peso’s best close in six months or since its P55.58-a-dollar finish on March 18.

The peso opened Tuesday’s session stronger than Monday’s close at P55.78 against the dollar. Its weakest showing was at P55.84, while its intraday best was at P55.655 versus the greenback.

Dollars exchanged inched up to $1.26 billion on Tuesday from $1.2 billion on Monday.

“The dollar-peso closed lower mainly because of increasing bets for a 50-bp rate cut at the Fed’s meeting,” a trader said by phone.

Expectations of a larger Fed cut led to a weaker dollar on Tuesday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

For Wednesday, the trader said the peso could trade sideways ahead of the Fed’s policy decision.

The trader sees the peso moving between P55.50 and P56 per dollar on Wednesday, while Mr. Ricafort expects it to range from P55.60 to P55.80.

The dollar traded near its lowest levels of the year on Tuesday, on the eve of the expected start to a US easing cycle that markets are betting may begin with an outsized rate cut, Reuters reported.

The yen eased back to 140.58 after a jaunt to the stronger side of 140 during holiday thinned trade on Monday.

It has fallen the most this year so has the most room to rally on a dovish turn from the US central bank. A sustained break of 140.00 would open the way to a low from last January at 127.215.

Fed funds futures have rallied to push the chance of a 50-bp rate cut to 69%, against 30% a week ago. The odds have narrowed sharply after media reports revived the prospect of a more aggressive easing.

Meanwhile, the Bank of Japan is expected to keep policy steady on Friday but signal that further interest rate hikes are coming, perhaps turning the next meeting in October into a live one.

The US dollar index held at 100.6, not far from its 2024 low made last month at 100.51. — AMCS with Reuters