Peso seen sustaining rally on dovish Fed

The Philippine peso would likely sustain its rally that had brought it closer to the 55-per-dollar level amid expectations of more dovish signals from the US Federal Reserve that may weaken the greenback.

The local unit ended a shortened trading week at 56.333 on Thursday, 16.7 centavos stronger than its previous finish of 56.5. Local markets were closed on Friday because of the holiday.

Robert Dan Roces, chief economist at Security Bank, said the peso tracked a regional upswing after the Federal Open Market Committee (FOMC) released the minutes from its July meeting, which showed a broad agreement that a rate cut by the Fed in September “would likely be appropriate”.

And more dovish remarks came out in Fed Chair Jerome Powell’s Jackson Hole speech which, Roces said, would might increase the selling pressure on the dollar and bolster Asian currencies like the peso.

“Any dovish tilt post-Jackson Hole Symposium should also weigh on the USD further and strengthen the PHP,” he said.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, shared the same view.

“The strengthening may continue amidst likely more dovish comments from the US Fed including Powell’s Jackson Hole speech,” Asuncion said.

Easing cycle

At its Aug. 15 meeting, the BSP kicked off its easing cycle with a 25-basis point (bp) cut to the policy rate, a first in nearly four years. The decision brought the BSP’s target reverse repurchase rate to 6.25 percent, with Governor Eli Remolona Jr. saying there is a room for one more 25-bp cut either at the October or December meeting of the central bank.

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What made the BSP’s easing action stand out was that it was done ahead of the Fed. Despite the bold move, analysts had expected to see only a slight weakness of the peso.

For Unionbank’s Asuncion, the local currency may feel some pressure “as we are toward import season” at the tail end of the year.

Meanwhile, Bank of America (BofA) now expects the peso to end 2024 at 56 against the dollar, stronger than its previous forecast of 57.

“With the Fed cutting cycle likely commencing soon, PHP could still appreciate versus USD over time, which would keep BSP relatively comfortable on FX moves,” BofA said.