Philippine peso may recover as Fed seen holding rates steady

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Philippine peso may recover

Highlights

Peso sinks to record low of P63.615 per dollar, depreciating 7.58% year-to-date, but traders expect rebound as Fed likely holds rates steady this week.
BSP says inflation may stay elevated through 2024, revises 2027 forecast to 6%, triggers 50 bps rate hike and signals possible further tightening.
Brent crude hits five-month high at $114 per barrel on Middle East conflict escalation, intensifying peso pressure alongside BSP's non-intervention stance.

Fed outlook and peso trading range

As reported by BusinessWorld Online, traders expect the peso to rebound in the coming days after it closed at another all-time low of P63.615 per dollar on Friday, as investors look for a more dovish outcome from the Fed's policy review.

The currency weakened by 9.5 centavos from Thursday's P63.52 finish and also touched an intraday record low of P63.62. Week on week, the peso declined by 63 centavos from its P62.985 finish on Oct. 16. Year to date, the local unit has depreciated by P4.825, or 7.58%, from its P58.79 finish on Dec. 29, 2025.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the market is likely to focus on the Fed meeting, where policymakers are expected to hold rates steady amid mixed U.S. data. A third trader said the peso could get some relief after dovish remarks from some Fed officials pushed back rate hike expectations to December.

The Fed raised rates in September for the first time since 2023 to address above-target inflation, but fed funds futures late on Friday implied less than a 10% chance of another increase at Wednesday's policy announcement, according to LSEG data cited by Reuters. Markets are still leaning toward a hike in December, with futures indicating roughly an 80% probability. Both Ricafort and the third trader expect the peso to trade between P63.30 and P63.80 this week.

Inflation risks and BSP stance weigh on sentiment

The peso closes at a record low for the fifth straight trading day on Friday after the Bangko Sentral ng Pilipinas says inflation is likely to stay elevated until next year. On Thursday, the BSP says it still expects inflation to average 6.1% for this year, while raising its 2027 forecast to 6% from 5.4% and keeping its 2028 estimate at 3.3%.

The central bank says strong El Niño conditions could add to price pressures, alongside continued spillovers from the prolonged Middle East conflict. That assessment helps drive the Monetary Board's more aggressive move last week, when it raises benchmark interest rates by 50 basis points. The BSP also leaves the door open for further tightening if needed to contain broadening price pressures.

September headline inflation accelerates to 7.2% from 6.1% in August and 1.7% a year earlier. It matches the April pace and marks the fastest inflation reading in three and a half years, while extending the run above the BSP's 3% target to seven straight months.

A second trader says remarks from BSP Governor Eli M. Remolona, Jr. that the central bank does not target a specific peso level likely contribute to Friday's slide by encouraging speculators to test the threshold for intervention. Remolona says the BSP only steps in to smooth large currency swings that risk becoming inflationary.

Oil prices also add pressure on the currency. Houthi attacks on Saudi Arabia and reports that the U.S. and Israel have drawn up plans for renewed strikes on Iran after the U.S. midterm elections lift Brent crude to a five-month peak of $114 a barrel, according to Reuters.

In our earlier article, we covered how internal debate at the Federal Reserve over public communication was shaping markets ahead of the next rate decision. We noted that frequent remarks from policymakers helped temper expectations for further tightening after September’s hike, even as inflation data kept the outlook uncertain.

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