The Philippine peso surged to a two-week high against the US dollar on Tuesday, fueled by shifting expectations surrounding US interest rate policy. Despite a cautious stance from the Federal Reserve’s chair, several key officials signaled openness to another rate cut in December, injecting fresh momentum into the local currency.
Traders reacted swiftly to these diverging signals, pushing the peso to close at P58.515 per dollar – a significant gain of 27.5 centavos from Monday’s close. This marked the strongest performance for the peso since October 22nd, demonstrating a clear upward trend.
The day’s trading saw the peso open stronger at P58.70, reaching an intraday high of P58.51 before settling at its closing value. Trading volume also saw a slight increase, reaching $1.327 billion, indicating heightened investor activity.
The catalyst for this appreciation lies in the ongoing debate within the Federal Reserve. While Chair Jerome Powell hinted at a potential pause in rate cuts, other influential voices, like Governor Lisa Cook and San Francisco Fed chief Mary Daly, emphasized the need to remain flexible and consider further easing measures in December.
Market sentiment now reflects a 65% probability of a December rate cut, a decrease from 94% the previous week, but still a substantial likelihood. This uncertainty surrounding US monetary policy continues to benefit the peso, as investors anticipate potential capital inflows.
Adding to the peso’s strength is the anticipation of favorable Philippine inflation data. Economists predict that October’s consumer price index (CPI) will remain within the central bank’s target range of 2%-4%, potentially paving the way for future local policy rate cuts.
A BusinessWorld poll of analysts forecasts an October CPI of 1.8%, a slight increase from September but still below the annual target. This would mark the eighth consecutive month of below-target inflation, reinforcing the positive outlook for the peso.
Looking ahead, traders predict the peso could continue its ascent, potentially trading between P58.35 and P58.60 against the dollar on Wednesday. Experts suggest a trading range of P58.40 to P58.65, contingent on the actual inflation figures released.
The peso’s recent performance underscores its sensitivity to global economic cues and domestic inflation expectations. The interplay between these factors will likely dictate its trajectory in the coming days, offering a dynamic landscape for currency traders.
