Peso down on Fed comments

BW FILE PHOTO

THE PESO dropped against the dollar on Wednesday after a US Federal Reserve official said rates are likely to stay higher for longer due to sticky inflation.

The local unit closed at P57.385 per dollar on Wednesday, weakening by 16.4 centavos from its P57.221 finish on Tuesday, Bankers Association of the Philippines data showed.

The peso opened Wednesday’s session weaker at P57.35 against the dollar, which was already its intraday best. Meanwhile, its worst showing was at P57.475 versus the greenback.

Dollars exchanged inched down to $1.16 billion on Wednesday from $1.17 billion on Tuesday.

The peso was dragged down by a stronger dollar amid hawkish comments from Minneapolis Fed President Neel Kashkari, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Kashkari said at a Milken Institute conference that stalled inflation, kept higher in part by housing market strength means the central bank will need to hold borrowing costs steady for an “extended period,” and possibly all year, Reuters reported.

Mr. Kashkari did, however, also say it is still possible the Fed could cut if inflation begins to cool again.

The comments came on the heels of remarks from Fed officials on Monday that seemed to lean toward indicating the central bank’s next move would be to lower interest rates.

“The peso weakened due to market caution ahead of the first-quarter Philippine GDP (gross domestic product) report,” a trader added in an e-mail.

First-quarter GDP data will be released on May 9, Thursday.

A BusinessWorld poll of 20 economists and analysts conducted last week yielded a median GDP growth estimate of 5.9% for the first three months of 2024.

If realized, this would be faster than the preliminary 5.5% growth recorded in the previous quarter but slower than the 6.4% expansion logged in the first quarter of 2023.

However, the median estimate is a tad lower than the government’s 6-7% growth target for the year.

For Thursday, the trader said the peso’s movement will depend on the GDP report. The trader sees the peso moving between P57.30 and P57.50 per dollar, while Mr. Ricafort expects it to range from P57.25 to P57.45. — A.M.C. Sy with Reuters