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Peso weakens vs dollar with Fed seen to stay hawkish

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THE PESO depreciated anew against the dollar on Wednesday on expectations that the US Federal Reserve will keep benchmark rates elevated.

The local unit closed at P58.755 per dollar, weakening by 13.5 centavos from its P58.62 finish on Tuesday, Bankers Association of the Philippines data showed.

The peso opened Wednesday’s session steady at P58.62 against the dollar. It dropped to as low as P58.77, while its intraday best was at P58.58 versus the greenback.

Dollars exchanged increased to $930 million on Wednesday from $858.53 million on Tuesday.

The peso was dragged down by signals from Fed officials on the need to keep benchmark rates higher for longer due to sticky inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso weakened after several Fed officials remained cautious on their rate cut calls,” a trader likewise said in an e-mail.

“The weaker-than-expected US retail sales data helped keep rallies in check for today and the pair stayed within recent ranges as it continued its consolidation phase,” Security Bank Corp. Chief Economist Robert Dan J. Roces added in a Viber message on Wednesday.

US retail sales barely rose in May and figures for the prior month were revised considerably lower, data showed on Tuesday, suggesting economic activity remained lackluster in the second quarter, Reuters reported.

The data led to a small boost in rate cut expectations for September with traders pricing in a 67% chance of easing compared with a 61% chance a day earlier, CME FedWatch tool showed. Markets are pricing in 48 basis points of cuts this year.

Last week, mild US inflation readings contrasted with an overall hawkish stance by Fed officials, who trimmed their previous median projection for three quarter-point rate cuts this year to one.

Fed officials are looking for further confirmation that inflation is cooling and for any warning signs from a still-strong labor market as they steer cautiously toward what most expect to be a rate cut or two by the end of this year.

For Thursday, Mr. Ricafort said the local unit could move between P58.60 and P55.80 per dollar, while the trader sees it ranging from P57.55 to P57.80. — AMCS with Reuters

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