The peso climbed to a more than two-month high against the US dollar Wednesday amid expectations that the US Federal Reserve may consider smaller rate hikes in its next meetings following the easing of inflation in the world’s biggest economy.
The peso closed at 56.94 against the dollar, stronger than Tuesday’s 57.375. It was its strongest level since it settled at 56.77 on Sept. 13, 2022.
Total volume turnover reached $687.85 million, slightly up from $684.4 million a day earlier.
“Recent comments from Federal Reserve officials indicated openness to slow the pace of future rate hikes,” Rizal Commercial Banking Corp. chief economist Michael Ricafort told Manila Standard in a response to a query.
He said financial markets were now expecting a smaller 50 bps rate hike on Dec. 14, 2022.
“The peso also strengthened after the local stock market gained for the second straight day to close at 6,510.32,” he said.
The PSE index, the 30-company benchmark of the Philippine Stock Exchange, climbed 80 points, or 1.25 percent, to close at 6,510.32 on Wednesday.
Ricafort said the peso remained relatively stable for the ninth straight week, after hitting 59 a dollar in October.
He said the peso was still down by P5.941 or 11.6 percent from P50.99 in end-2021. The peso’s performance remained similar to other regional currencies such as the Chinese yuan, Indonesian rupiah, Indian rupee, Malaysian ringgit and the Thai baht, he said.
Ricafort said a lower peso could still increase the possibility of further rate hikes by the BSP, possibly matching future Fed rate increases if inflation remained high.
He said one catalyst for the peso going forward would be the expected seasonal surge in remittances from overseas Filipino workers, a few weeks before the Christmas and New Year.
The greenback has been declining against other global currencies following the easing of inflation rate in the US to 7.7 percent in October from 8.2 percent in September, which could compel the Fed to consider smaller rate hikes in its next meetings.
Ricafort said the financial markets reduced and moderated their estimate for additional Fed rate hikes in view of the easing US inflation data.
The peso returned to the 57-per-dollar territory on Nov. 9 and continued to appreciate after the BSP’s Monetary Board raised on Nov. 17 the benchmark policy rate by 75 basis points to a near 14-year high of 5 percent to rein in inflation and support the value of the local currency.
BSP data showed that the last time the policy interest rate reached 5 percent was in February 2009.
The peso settled at a record low of 59 against the dollar four times on Oct. 3, 10, 13 and 17.