Peso bounces back to P58/dollar level after hitting historic lows

Manila, Philippines – The peso bounced back from record lows against the dollar at the close of trade on Wednesday, Oct. 29, to return to the P58 territory, hours before the US Federal Reserve wraps up a meeting where it is widely expected to cut rates by a quarter point.

Wednesday’s finish of P58.69 against the greenback was a last-minute rally as the local currency opened the day’s session weak, with a decline as steep as P59.26, trumping the record low of P59.13 set the day before.

Bets on the Fed rate cuts cushioned what could have been the peso’s free fall, traders said.

“The appreciation of the peso today could be due to the expectations of a Fed rate cut which is seen to weaken the US dollar,” an analyst said.

It was unclear whether the Bangko Sentral ng Pilipinas (BSP) stepped in during intraday trade that was characterized by sluggish volume in early deals, before bulking up to $2 billion in the last hour before session ended at 4 p.m.

But the central bank on Tuesday had said that it will tolerate the peso’s weakness and will intervene only to “dampen inflationary swings in the exchange rate over time” rather than smoothing near-term volatility.

Lingering concerns over the extent of graft in public infrastructure spending have sent the peso tumbling to successive record lows, both the central bank and analysts said earlier.

Combine that with BSP signals that the easy-cash era is unlikely to end soon, the local currency becomes less attractive to yield-seeking and risk-averse investors.

But Wednesday’s turnaround was driven by market’s pricing in more rate reductions by the Fed in October and December. Two more Fed cuts are expected by July of next year, according to a Reuters poll.