Philippine peso extends gains after Fed holds rates steady

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Philippine peso gains after Fed

Highlights

The Philippine peso strengthens to P63.85 per dollar on Thursday, up 17.5 centavos from Wednesday, following the Fed's dovish hold.
Gross international reserves drop 8.31% year on year to $99.997 billion as of September, their lowest in three years, per Bangko Sentral ng Pilipinas.
President Marcos pledges government support for the peso, citing sufficient foreign exchange reserves to defend against further sharp declines.

Fed decision and market trading details

As reported by BusinessWorld, citing Reuters, the Federal Reserve keeps its benchmark rate unchanged at 3.75% to 4% and signals a more dovish stance, helping pull the dollar lower and giving emerging-market currencies, including the peso, some relief.

The local currency closes at P63.85 per dollar on Thursday, stronger by 17.5 centavos from P64.025 on Wednesday, according to Bankers Association of the Philippines data. It opens at P63.88 and trades firmer throughout the day, touching an intraday best of P63.80 and a low of P63.91. Dollar volume falls to $1.46 billion from $1.66 billion.

A trader says the peso tracks the dollar's overnight correction after the Fed's dovish hold, while softer global crude oil prices also lend support. The U.S. central bank says inflation remains elevated, but it also upgrades its view of economic growth to a strong pace.

Fed Chairman Kevin Warsh also expresses confidence that inflation can return to the 2% target without sharply slowing growth or pushing unemployment higher. Market participants had broadly expected no immediate rate move after Fed officials recently signaled little urgency to tighten again following last month's quarter-point increase.

Government support and near-term outlook

Market sentiment also improves after Mr. Marcos says the government will do what it can to support the peso after its recent slide to record lows, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort says. The president says the country has enough foreign exchange reserves to defend the peso and prevent a further sharp decline against the dollar.

Bangko Sentral ng Pilipinas data show gross international reserves fall 8.31% year on year to $99.997 billion as of September, the lowest level in three years since September 2023. The central bank has also said it does not target a specific exchange rate and only steps into the market to smooth excessive swings that could fuel inflation.

For Friday, the trader says expectations of firmer U.S. gross domestic product data could support the greenback. The trader sees the peso moving between P63.60 and P64 per dollar, while Mr. Ricafort expects a P63.75 to P63.95 range.

In our earlier coverage of the Fed’s internal debate over policy messaging ahead of the next meeting, we explained how disagreements on how openly officials should communicate were influencing expectations for another rate hike. We noted that a run of public comments from key policymakers helped temper tightening bets after September’s increase, even as inflation data kept the outlook uncertain.

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