Peso climbs vs dollar ahead of Powell remarks

 Peso climbs vs dollar ahead of Powell remarks
BW FILE PHOTO

THE PESO strengthened against the greenback on Tuesday as the dollar sank to a one-month low and amid expectations of supportive monetary policy from the US Federal Reserve.

The local unit closed at P48.64 versus the dollar on Tuesday, gaining six centavos from its Monday’s finish of P48.70, data from the Bankers Association of the Philippines showed.

The peso opened the session at P48.72 a dollar. Its weakest showing was at P48.76 while its intraday best was its close of P48.64 against the greenback.

Dollars traded at $1.221 billion on Tuesday from $1.288 billion on Monday.

The peso gained due to the dollar’s weakness against major global currencies, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

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Meanwhile, a trader said currency trading was also affected by investors awaiting signals about the Fed’s monetary policy direction.

The dollar touched its lowest since Jan. 13 on Tuesday as investors shifted focus to how Fed chief Jerome Powell might respond to expectations of resurgent inflation, while commodity-linked currencies hovered near multi-year highs, Reuters reported.

The rise in inflation expectations as investors bet on a post-pandemic economic rebound and the so-called “reflation” trade had lifted US government bond yields and — briefly — the dollar until earlier this month.

But analysts expect Mr. Powell, who was set to testify before Congress at 1500 GMT, will provide reassurance that the Fed will tolerate higher inflation without rushing to raise rates. That might calm bond markets and eventually weigh on the dollar, they said.

“Mr. Powell will very likely reiterate that the Fed is a long way from meeting its goals and that it will likely take some time before ‘sufficient progress’ has been made to taper its bond purchase program,” UniCredit analysts said.

Joe Capurso, Commonwealth Bank of Australia currency analyst in Sydney, said he thought Mr. Powell would deliver “a bit of a cold shower and say: ‘Mr Market you’re getting a bit ahead of yourself….the US economy is long, long way from full employment.'”

The dollar index was last at 90.046, flat on the day, having earlier fallen to 89.941, its weakest since Jan. 13.

Positioning data shows investors overwhelmingly betting that a US dollar, which has been dropping since last March, will keep falling as the world recovers from the COVID-19 pandemic.

For today, Mr. Ricafort gave a forecast range of P48.55 to P48.75 per dollar, while the trader expects the exchange rate to move within the P48.55 to P48.75 band. — LWTN with Reuters

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