Peso falls against dollar due to expectations of major rate hike at Fed May meeting

The peso weakened against the dollar on Monday as investors priced a more aggressive rate hike from the US Federal Reserve.

The local unit closed at P52.41 per dollar on Monday, losing 9.5 centavos from its P52.315 finish on friday.

The peso opened Monday’s session at P52.38 against the dollar. Its weakest result was P52.48, while its best intraday was P52.38 against the dollar.

Exchanged dollars fell to $ 726 million on Monday from $ 1.283 billion on Friday.

The peso fell due to expectations of a major Fed policy rate hike, a trader said in a Viber announcement.

A half-point rate hike “will be on the table” when the Fed meets on 3-4. May to approve the next in what is expected to be a series of rate hikes this year, Fed Chairman Jerome H. Powell said Thursday in comments pointing to an aggressive set of actions ahead, Reuters reported.

With ifltion, which is running around three times the Fed’s 2% target, “it’s appropriate to move a little faster,” Mr Powell said in a discussion of the global economy at meetings of the International Monetary Fund.

A Reuters poll two weeks ago showed analysts expect the Fed to make two back-to-back 50 basis point (bp) rate hikes in May and June to get the downsideflation.

The Fed’s policy-making Federal Open Market Committee began winding down its pandemic-driven easy stance in March when it raised policy rates by 25 bps to tameflation.

Meanwhile, chief economist Michael L. Ricafort of Rizal Commercial Banking Corp. said the peso depreciated against the dollar along with other Asian currencies.

The US dollar climbed to its highest level in two years compared to its rivals on Monday and was heading for its biggest daily rise in more than six weeks as a wave of risk aversion swept through global markets, increasing the dollar’s safe haven.

With the war in Ukraine heading into a third month and the shutdown of 25 million people in Shanghai entering another month, investor sentiment was fragile due to concerns that rising consumer prices will lead to rapid global interest rate rises.

Compared to a basket of its rivals, the dollar rose 0.6% at the start of London trading to 101.62, a level it last tested in March 2020 and heading for its biggest daily rise since March 11th.

China’s yuan also fell to a one-year low against the dollar, prolonging losses after having its worst week since 2015, while a deteriorating economic growth outlook drove investors’ concerns that the currency could weaken further.

For Tuesday, Mr. Ricafort gave a forecast range of P52.40 to P52.45 per dollar, while the trader expects the local unit to move within 52.30 to P52.50. – LWT Noble with Reuters

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