Peso may stay at P58 level ahead of US election

THE PESO could stay at the P58-per-dollar level this week as the market stays cautious ahead of the US presidential elections on Nov. 5.

The local unit closed at P58.32 per dollar on Friday, sinking by 44 centavos from its P57.88 finish on Tuesday, Bankers Association of the Philippines data showed.

This was the peso’s worst close in almost three months or since it ended at P58.333 per dollar on Aug. 1.

The foreign exchange (forex) market was closed on Oct. 23-24 due to the suspension of work in government offices amid the typhoon.

Week on week, the peso plummeted by 80.9 centavos from its P57.511 finish on Oct. 18.

The peso dropped against the dollar on Friday as players filled their forex requirements following the two-day trading halt, a trader said by phone.

The local unit declined as the dollar was also generally stronger last week due to market caution ahead of the US presidential elections, the trader added.

The dollar slipped for a second straight session on Friday as a recent ascent lost steam, but the greenback was still on track for a fourth straight week of gains after data kept interest rate expectations for the Federal Reserve in check, Reuters reported.

The dollar index, which measures the greenback against a basket of currencies, shed 0.02% to 104.03, with the euro up 0.02% at $1.083.

The Commerce department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5% last month after an unrevised 0.3% gain in August and above the 0.1% rise estimated by economists polled by Reuters.

A separate report by the University of Michigan showed October consumer sentiment rose to 70.5 from 70.1, topping the 69.0 estimate, while the one-year inflation outlook fell to 2.7% from the preliminary reading of 2.9% but in line with September’s final result.

The dollar was poised for its fourth straight week of gains as a run of positive economic data has quieted expectations about the size and speed of the US Federal Reserve’s rate cuts, which has also lifted US Treasury yields.

The dollar has also benefited from a rise in market expectations for a victory next month by Republican candidate and former US President Donald J. Trump, which would likely bring about inflationary policies such as tariffs.

The peso weakened as banks’ lower reserve requirement ratios (RRR) took effect on Friday (Oct. 25), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Bangko Sentral ng Pilipinas (BSP) on Friday reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 basis points (bps) to 7%.

It also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders was reduced by 100 bps to 1%. Rural and cooperative banks’ RRR likewise went down by 100 bps to 0%.

For this week, the peso could continue to weaken as the market monitors the US presidential race, the trader said.

Mr. Trump and Democratic Vice-President Kamala Harris are polling neck-and-neck in crucial swing states ahead of the Nov. 5 election, Reuters reported. Investors are taking their cues from betting markets, where the odds have shifted in Mr. Trump’s favor.

Mr. Ricafort added that the peso could remain at the P58 level as investors await more policy signals from the BSP.

The Monetary Board this month cut benchmark interest rates by 25 bps for a second straight meeting, bringing its policy rate to 6%.

The BSP in August kicked off its easing cycle with a 25-bp reduction, marking its first rate cut in nearly four years.

BSP Governor Eli M. Remolona, Jr. signaled the possibility of another 25-bp cut at the Monetary Board’s last meeting for the year on Dec. 19, which would bring the policy rate to 5.75% by end-2024.

The trader sees the peso moving between P57.80 and P58.50 per dollar this week, while Mr. Ricafort expects it to range from P58 to P58.50. — A.M.C. Sy with Reuters