The peso rises to a new four-month high as Fed minutes reinforce lowered bets

THE PESO appreciated it to another four-month high against the dollar on Thursday, after minutes of the US Federal Reserve’s July policy meeting reinforced market expectations of a September interest rate cut in the world’s largest economy.

The local unit closed at P56.333 per dollar on Thursday, up 16.7 centavos from P56.50 on Wednesday, data from the Bankers Association of the Philippines showed.

This was the peso’s best performance in more than four months or since its closing rate of P56.315 per dollar on April 2.

The peso opened Thursday’s session at P56.333 against the dollar, which was also its closing level. It traded stronger throughout the session than Wednesday’s close as its weakest was just P56.38, while the intraday best stood at P56.28 against the dollar.

Dollars traded rose to $1.589 billion on Thursday, up from $1.588 billion on Wednesday.

The peso strengthened thanks to the dovish tone in the minutes of the July meeting of the Federal Open Market Committee (FOMC), a trader said in a telephone interview.

“The market was trading mostly sideways a while ago as they were awaiting the Jackson Hole Symposium,” the trader added.

“The peso followed most major Asian currencies against the dollar. There was selling interest in the pair as the dollar weakened after the FOMC minutes showed more support for rate cuts,” said Security Bank Corp. chief economist Robert Dan J. Roces. in a Viber message. “Any easing after the Jackson Hole Symposium should also weigh further on the dollar and strengthen the peso.

Philippine financial markets will be closed on Friday, August 23, due to a special non-working holiday in honor of Ninoy Aquino Day, which was moved from its original date of August 21.

The Federal Reserve appears to be on track for a rate cut in September after a “vast majority” of officials said such a move was likely, according to minutes from the U.S. central bank’s July 30-31 meeting. Reuters reported.

The minutes, released on Wednesday, showed that some policymakers at last month’s meeting might even have been willing to cut borrowing costs.

The policy-setting Federal Open Market Committee left its benchmark interest rate unchanged at between 5.25% and 5.5% on July 31, but opened the door to a cut at its meeting on September 17 and 18.

Financial markets expect the September meeting to kick off the Fed’s policy easing, with as much as a full percentage point of rate cuts expected by the end of this year.

At the July meeting, most policymakers thought that “if data continued to come in as expected, it would likely be appropriate to relax the policy at the next meeting,” according to the minutes.

They also noted that “many” Fed officials viewed interest rate policy as restrictive and that “some participants” argued that, amid a continued cooling of inflationary pressures, no change in rates would mean monetary policy would loosen the brakes on inflation. would increase economic activity.

While all Fed officials agreed in July that rates were holding steady, the minutes showed that “several” policymakers said progress in lowering inflation amid rising unemployment had provided “a plausible argument” for a quarter of a percentage point reduction in July. , “or whether they could have supported such a decision” if it had been on the table.

The minutes also showed that a dwindling camp of policymakers feared that premature easing of monetary policy could reignite inflation.

With the Fed letting the data dictate what happens to rates, central bank observers are already considering the future scope of the cuts and whether aggressive action is needed early in the easing cycle.

Fed Chairman Jerome H. Powell largely hinted at the likely outlook after the July policy meeting when he said: “If we get the data that we…hope to get, then a cut in our policy rate could be on the table during the September meeting. .”

Markets will likely get an update on Powell’s views on Friday when he speaks at the Kansas City Fed’s annual research conference in Jackson Hole, Wyoming. A number of other Fed officials are also likely to weigh in on the prospects while attending the conference. — AMC Sy of Reuters