Cautious trading seen before central bank policy decisions

THE PESO is seen trading sideways against the dollar this week as the Bangko Sentral ng Pilipinas (BSP) and US Federal Reserve hold their last policy meetings for 2024.

The local unit closed at P58.47 per dollar on Friday, weakening by 23 centavos from its P58.24 finish on Thursday, Bankers Association of the Philippines data showed.

Week on week, the peso likewise depreciated by 73.5 centavos from its P57.735 finish on Dec. 6.

The peso declined on Friday amid a stronger dollar following the release of key US inflation reports that could affect the Fed’s rate-cut cycle, a trader said by phone.

The move of Indonesia’s central bank to defend the rupiah also affected regional currencies on Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar headed for its best weekly performance in a month on Friday, as investors priced in the possibility of the Federal Reserve cutting rates more slowly next year, Reuters reported.

The US currency also rose against the yen after reports that the Bank of Japan could forgo a rate hike at its meeting this week.

The dollar index, which measures the currency against six others, was up 0.037% at 107, set for a weekly gain of nearly 1%, its biggest in a month.

US data on Thursday showed the job market is gradually cooling in line with expectations, while producer price inflation helped reinforce the market’s current scenario of a Fed cut on Dec. 18, but a slower pace of reductions in 2025.

Markets fully expect a cut at the upcoming meeting, but only price a roughly 24% chance of another one in January, with March the most likely point for another move, according to CME’s FedWatch tool.

The dollar rose 0.69% to 153.695 yen, its highest since late November.

Meanwhile, Indonesia’s central bank has intervened in the foreign exchange (FX) market in what it called a “bold” way to maintain market confidence in the rupiah, which fell to a four-month low against the dollar earlier on Friday.

“We entered the market with a quite bold triple intervention,” Bank Indonesia’s head of monetary management department, Edi Susianto, told Reuters.

The triple intervention is referring to interventions the central bank conducted in the spot FX market, domestic non-deliverable forwards and buying of government bonds in the secondary market.

For this week, the trader said the peso’s movement against the dollar will depend on the policy decisions of the Fed and the BSP.

The trader sees the peso moving between P58.25 and P58.75 per dollar this week amid “cautious trading” before the central banks’ reviews, while Mr. Ricafort expects the local unit to range from P58.15 to P58.65.

The Fed will hold its last policy review for the year on Dec. 17-18. Investors bet that Fed Chair Jerome H. Powell will signal a pause in policy easing after a widely expected 25-basis-point (bp) rate cut this Wednesday, Reuters reported.

The US central bank started its easing cycle in September with a 50-bp cut and followed it up with a 25-bp reduction at its November review, bringing the fed funds rate to the 4.50%-4.75% range.

Meanwhile, a BusinessWorld poll conducted last week showed that 13 out of 16 analysts expect the BSP Monetary Board to reduce benchmark rates by 25 bps at its policy meeting on Dec. 19 (Thursday), which would bring the target reverse repurchase rate to 5.75% from the current 6%.

The BSP kicked off its rate-cut cycle in August with a 25-bp reduction and slashed borrowing costs by another 25 bps in October. — A.M.C. Sy with Reuters