Peso advances on bets of further US rate cuts

By Aaron Michael C. Sy, Reporter

THE PHILIPPINE PESO appreciated against the dollar on Wednesday amid weaker US consumer confidence and bolstered market expectations of another aggressive rate cut by the US Federal Reserve at its November meeting.

It closed at P55.88 a dollar, 36.5 centavos stronger that its close on Tuesday, Bankers Association of the Philippines data showed.

The peso opened at P55.95 against the dollar, appreciated to as much as P55.83 and weakened to as much as P56 against the greenback. Dollars exchanged fell to $1.54 billion from $1.8 billion a day earlier.

“The dollar-peso closed lower due to the lower consumer confidence data and aggressive Fed cut bets,” a trader said by phone.

US consumer confidence dropped by the most in three years in September amid mounting fears over the labor market, though more households planned to buy a home in the next six months, Reuters reported.

The Conference Board survey on Tuesday also showed consumers expected inflation to quicken in the coming year, clouding their views of the economy before the Nov. 5 presidential election. The US economy could determine the outcome of the vote.

The Conference Board’s consumer confidence index dropped to 98.7 this month from an upwardly revised 105.6 in August. The decline was the largest since August 2021. Economists polled by Reuters had forecast the index rising to 104 from 103.3.

Meanwhile, Federal Reserve Bank of Chicago President Austan Goolsbee on Monday said he expects “many more rate cuts over the next year” as the US central bank seeks a soft landing for the economy, where it controls inflation without crashing the labor market.

Inflation is “way down” from its peak and in recent months has been coming in at the Fed’s 2% target, Mr. Goolsbee said in remarks prepared for delivery to the National Association of State Treasurers annual conference.

“Basically, we would love to freeze both sides of the Fed’s dual mandate right here,” he said. “Yet rates are the highest they’ve been in decades. It makes sense to hold rates like this when you want to cool the economy, not when you want things to stay where they are.”

The Fed last week cut its policy rate to 4.75%-5%, delivering a bigger-than-usual half-of-a-percentage point cut.

“I am comfortable with a starting move like this — the 50-basis-point (bp) cut in the Federal fund rate announced last Wednesday — as a demarcation that we are back to thinking more about both sides of the mandate,” Mr. Goolsbee said. “If we want a soft landing, we can’t be behind the curve.”

The peso also followed the dollar’s recent decline due to the US consumer confidence data, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The dollar index was at 100.3, near its year-to-date lows, weighed by a rising possibility that the Fed will deliver a 50-bp rate cut at its November meeting. Weak US consumer confidence data on Tuesday prompted investors to push up the odds of a rate cut of that size to more than 60%, Reuters reported.

The trader expects the peso to trade at P55.60 to P56 a dollar, while Mr. Ricafort expects it at P55.80 to P56.