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Peso weakens after Fed minutes

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THE PESO slid on Thursday despite the slightly dovish tone of the minutes of the US Federal Reserve’s Sept. 19-20 meeting, with the market buying the dollar.

The local currency fell to P51.43 against the greenback, eight centavos weaker than the P51.35-per-dollar close in the previous trading session.

At the session’s open, the peso shed five centavos to P51.40. It dropped to as low as P51.45, while its strongest showing for the day was at P51.32 versus the dollar.

Dollars traded were valued at $821.1 million, slightly up from the $801.8 million recorded in Wednesday.

Analysts said the peso weakened as the market bought the dollar after the Federal Open Market Committee (FOMC) minutes carried a dovish tone.

“The peso strengthened first due to the dovish FOMC minutes overnight, but we still saw buying interest every time it trades lower,” said a trader interviewed over the phone.

“So from a high, we slowly traded lower, closing even weaker,” the trader added.

Federal Reserve policy makers had a prolonged debate about the prospects of a pickup in inflation and slowing the path of future interest rate rises if it did not, according to the minutes of the US central bank’s last policy meeting on Sept. 19-20 released on Wednesday.

The readout of the meeting, at which the Fed announced it would begin this month to reduce its large bond portfolio mostly amassed following the financial crisis and unanimously voted to hold rates steady, also showed that officials remained mostly sanguine about the economic impact of recent hurricanes.

“Many participants expressed concern that the low inflation readings this year might reflect… the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the Fed said in the minutes.

As such several said that they would focus on incoming inflation data over the next few months when deciding on future interest rate moves.

Nevertheless, many policy makers still felt that another rate increase this year “was likely to be warranted,” the Fed said.

Fed Chair Janet L. Yellen has repeatedly acknowledged since the meeting that there is rising uncertainty on the path of inflation, which has been retreating from the Fed’s 2 % target rate over the past few months.

However, Ms. Yellen and a number of other key policy makers have made plain they expect to continue to gradually raise interest rates given the strength of the overall economy and continued tightening of the labor market.

Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said on Thursday: “The peso generally depreciated today, despite some temporary moves towards the opposite direction, as the FOMC minutes still pointed to another US rate hike this year even as they raised doubts about the Fed’s initial view of low inflation being transitory.”

For today, analysts said the peso-dollar pair may trade sideways ahead of US inflation data.

“They are expecting that it is slightly better than expected,” the first trader noted, as it would affirm the Fed’s view on its third policy tightening this year.

“The market will stay on the sidelines ahead of the consumer price index. If it trades higher, we will see profit taking,” the trader added.

Mr. Dumalagan shared this view, saying the peso will depreciate further “due to likely upbeat data on US producer prices and expectations of stronger US inflation.”

“Investors might focus on the latter report to determine whether low inflation still remains a major concern, as highlighted in the FOMC minutes,” he added.

The trader expects a P51.30 to P51.50 per dollar range today, while Mr. Dumalagan sees a P51.35 to P51.55 range. — E.J.C. Tubayan with Reuters

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