Peso falls past 58:$1 level

The Philippine peso emerged from a two-day trading halt sinking past the 58 level on Friday amid a dollar rally fueled by expectations of slower rate cuts by the US Federal Reserve, while investors positioned ahead of the US presidential election.

The local currency capped the week at 58.32 versus the greenback, 44 centavos weaker than its previous closing of 57.88 on Tuesday, Oct. 22. Trading was suspended on Oct. 23 and 24 because of Severe Tropical Storm “Kristine” (international name: Trami).

Data showed this was the peso’s worst performance since finishing at 58.333 against the dollar on Aug. 1, 2024. Trading was heavy on Friday, with $1.7 billion switching hands.

A trader said the peso was overpowered by a strong dollar that’s enjoying safe-haven inflows from cautious outlook on the ongoing Fed cutting cycle, and uncertainty over the US presidential elections on Nov. 5.

The US central bank’s benchmark rate now sits between 4.75 and 5 percent following a jumbo half point cut in September, with Fed policymakers thinking the key rate would fall by another 50 basis points (bps) by the end of this year.

Strong economy

However, a slew of strong economic data releases in the past days had led market watchers to believe that the Fed might have to take it easy on the rate cuts.

“The peso weakened past the 58-level as lingering market uncertainty on the US economic policies emanating from the upcoming US election has driven safe-haven demand for the greenback,” the trader said.

“The local currency might recover some of its losses next week due to some profit taking and potentially softer US PCE (personal consumption expenditures) inflation, which is the Fed’s main inflation gauge,” he added.

Noel Reyes, chief investment officer for Trust and Asset Management Group at Security Bank Corp., shared the same view, adding that the market is already preparing for the possibility of another Trump presidency as the former US leader takes a narrow lead in latest surveys over his democratic rival, Vice President Kamala Harris.

Fed cuts

“[The US dollar’s] strength versus the peso, like with other currencies, is due to the resilient [and] firm economic data in the United States and the ‘Trump win’ factor being priced in,” Reyes said.

“Pace of the Fed cuts will be slower given the data, while a Trump presidency will be inflationary given his bias for tax cuts and tariff increases,” he continued, adding that the same developments will dictate the trend next week.

“The market needs softer data to come out to reassess—58.50 is a strong ceiling.”