Peso drops further on hawkish Fed bets

THE PESO dropped further against the dollar on Thursday following hawkish signals from the US Federal Reserve and as the Bangko Sentral ng Pilipinas (BSP) held its own policy meeting.

The currency sank by 17.4 centavos to close at P60.567 versus the greenback from P60.393 on Wednesday, based on Bankers Association of the Philippines data posted on its website.

The local unit opened Thursday’s session sharply weaker at P60.60 per dollar. It dropped to a low of P60.65, while its intraday best was at P60.41 against the greenback.

Dollars traded eased to $1.62 billion on Thursday from $1.65 billion on Wednesday.

The peso weakened after the Fed held benchmark borrowing costs steady but gave hawkish signals, a trader said by phone.

The currency was dragged by a generally stronger dollar after Fed officials signaled possible rate hikes this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Meanwhile, the peso’s decline also came after the BSP hiked rates at its own meeting on Thursday but signaled a more “measured” stance, the trader added.

The Monetary Board increased benchmark borrowing costs for a second straight meeting to curb second-round price risks and keep inflation expectations anchored amid the impact of the Middle East conflict.

It raised the target reverse repurchase rate by 25 basis points (bps) to 4.75%. Rates on the overnight deposit and lending facilities were also lifted by 25 bps each to 4.25% and 5.25%, respectively.

This matched the prediction of 15 out of 20 analysts in a BusinessWorld poll conducted last week, or before the United States and Iran signed an interim peace deal aimed at ending their near four-month conflict.

Meanwhile, four had expected a larger 50-bp move.

For Friday, the trader sees the peso moving between P60.40 and P60.80 against the dollar, while Mr. Ricafort expects it to range from P60.45 to P60.70.

The US dollar hovered close to a two-month high on Thursday after a hawkish hold from the Federal Reserve triggered bets on rate hikes, while yen weakness drew verbal warnings from Japanese officials, Reuters reported.

The US central bank held rates steady in a 3.5% to 3.75% range as new chair Kevin Warsh opened his era in charge with a sweeping policy review. Nearly half of policymakers now expect a hike this year as inflation concerns mount.

The Fed funds futures market has priced in an 85% chance of Fed tightening in December, according to CME FedWatch, with a strong retail sales reading further adding to hawkish bets.

The euro last traded roughly flat at $1.15  and sterling was 0.1% lower at $1.328, with both trading around two-month lows.

The dollar index, which measures the greenback against a basket of currencies including the yen, euro and sterling, was very slightly stronger at 100.39.

It surged 0.85% to the strongest level since March 31 in the previous session, its biggest single-day jump in over three months.

“The Fed’s hawkish policy update is threatening to trigger a bullish break out for the US dollar,” said Lee Hardman, senior currency analyst at MUFG.

“The US dollar has derived support from the sharp adjustment higher for short-term US rates,” he said, “more than offsetting the dampening impact from the US-Iran deal announcement over the weekend.”

The Japanese yen weakened to as low as 160.760 after hitting its weakest since 2024 at ¥160.795 on Wednesday, wiping out gains made after Tokyo’s intervention on April 30. The dollar was last flat against the currency at ¥160.64 yen.

The renewed slide prompted a fresh response from the government, with officials reiterating their readiness to support the currency.

“We are ready to respond appropriately to currency moves as needed at any time,” Chief Cabinet Secretary Minoru Kihara told a press conference on Thursday when asked about the yen’s decline. — Aaron Michael C. Sy with Reuters